Euro Area Core Inflation Spikes to Keep the Pressure on the ECB

It was another busy day on the European economic calendar, with euro area core inflation the key stat. Early in the European session, Spanish unemployment figures drew interest. After the better-than-expected February manufacturing PMI, investors expect improving labor market conditions.

Unemployment increased by 2.6k in January versus a forecasted 11.5k increase. In December, unemployment increased by 70.7k.

However, prelim euro area inflation figures for February had more influence. Member state inflation CPI reports posted hotter-than-expected numbers mid-way through the first quarter. Today’s euro area inflation numbers followed a similar trend.

The euro area annual inflation rate softened from 8.6% to 8.5%, while the core inflation rate accelerated from 5.3% to 5.6%. Economists forecast inflation rates of 8.2% and 5.3%, respectively.

According to Eurostat,

• Food, alcohol, & tobacco is forecast to have the highest annual rate of 15.0% versus 14.1% in January.
• Non-energy industrial goods price inflation increased from 6.7% to 6.8%, with services rising from 4.4% to 4.8%.
• However, energy price inflation softened from 18.9% to 13.7%.

Softer energy price inflation is significant for the ECB. In the latest ECB Economic Bulletin, the ECB noted that rising wage growth and declining energy price inflation should ease the loss of purchasing power and support consumption.

Eurozone unemployment numbers failed to influence the EUR/USD, holding steady at 6.7%.

EUR/USD Price Reaction to Euro Area Core Inflation

Ahead of the inflation numbers, the EUR/USD rose to an early high of $1.06730 before falling to a low of $1.06192.

However, in response to the inflation numbers, the EUR/USD rose to a post-stat high of $1.06321 before falling to a session-matching low of $1.06192.

At the time of press, the EUR/USD was down 0.43% to $1.06231, with Fed Fear weighing on the EUR/USD.

Next Up

After the latest stats, investors need to monitor ECB member speeches. ECB Executive Board member Isabel Schnabel will speak this afternoon. Schnabel will need to look beyond March to move the dial.

However, the ECB monetary policy meeting minutes should attract interest. The ECB’s outlook on inflation, the economy, and monetary policy remain focal points.

Looking ahead to the US session, it is a relatively busy day on the US economic calendar. US jobless claims, unit labor costs, and nonfarm productivity numbers will be in focus. While nonfarm productivity numbers will draw interest, the jobless claims and unit labor costs will likely have more influence.

A further decline in initial jobless claims and a jump in unit labor costs would fuel market bets of a more hawkish Fed monetary policy outlook. FOMC member Waller will speak after today’s stats. Investors will want to know how high the Fed will be willing to go.