Relevance Risks For Inflation
The ECB will be looking at Wednesday’s German inflation releases with some degree of nervousness. While there is no need to sound the alarm over ‘price stability’ (to the downside) yet, disinflationary headwinds, not helped by a persistently strong euro, has become a strong policy anchor, i.e. a compelling reason to ease policy. The BoE is still in search of policy anchors and inflation expectations may feature in their list. However, we note that it is a question of ‘be careful what you wish for’. If sterling starts to react the ‘right’ way to inflation, the resulting tightening from currency strength will be hard to countenance.
Read the full report: UBS