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Eurozone - Rotten to the Core

by Murray Gunn
Updated: April 02, 2019

This week's Eurozone economic data will worry the ECB even more.

Manufacturing Purchasing Managers indices in the Eurozone came in lower than expected for March, pointing to continued weakness in the economy. Furthermore, Eurozone consumer prices are rising at an ever slower rate. Momentum has been waning for two decades.

This week's Eurozone inflation data for March was lower than expected with the core rate (excluding food and energy) coming in at 0.8% year-on-year. The core rate is the European Central Bank's (ECB) preferred measurement and so this latest downturn will worry it, especially given that the ECB declared victory over deflation last year. The chart below shows that Eurozone core inflation has been in a disinflationary trend (meaning that prices are rising at an ever slower rate) since 2002. Clearly, there is an entrenched mood in the minds of Eurozone economic participants which is suppressing consumer prices.

Of course, this has coincided with a 19-year (and counting) bear market in the EuroSTOXX stock market index. Our analysis maintains that the Eurozone bear market is not yet over. It doesn't have to follow the stock market, but we would not be surprised to see the Eurozone consumer price index start to register declines in the future.

Euro Area Core Inflation Rate

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