Europe: Medium to Long-Term Expected Inflation Rate Rising
2023-05-30
■ With the tone of inflation at the foot of the eurozone, the medium to long-term expected inflation rate is also constantly rising.
■ Continue to seek policy responses to curb inflation while maintaining negative real interest rates.
In the euro area, the growth rate of service prices will not stop. The core consumer price index (HICP, April: 5.6% higher than the previous year), excluding food, energy, alcohol, and tobacco, which represent basic inflation, continues to maintain high growth. In addition, in the medium and long term, the expected inflation rate is strengthening its upward trend.
According to the Consumer Expectation Survey (CES) released by the Bank of China (ECB) in Europe, the expected inflation rate of consumers in the next three years shows signs of peaking out in 2023. However, in the latest data in March (with an average of 4.3% and a median of 2.9%), the level of significant appreciation appears to be approaching the peak of 3.0% in the second half of last year. In addition, the inflation swap sector ECB in the first five years of the Eurozone, as a long-term expected inflation rate, will continue to rise in the financial market, even after the appreciation level after Russia's invasion of Ukraine in February last year. It has now reached 2.57%, which is the highest-level range in history. Since March this year, there has been a change in the inflation swaps of the Eurozone for the past five years, the inflation swaps of the United States for the past five years, and the BEI of the 10-year price-linked treasury bonds. In reverse, there are signs that long-term expected inflation in the euro area is outpacing that in the US.
As long as we judge from these data, there are currently no signs that the euro zone's key inflation will converge to the 2% inflation target in the future. Given the policy guidelines listed by the ECB, it is currently believed that there is no suspension of interest rate hikes. In addition, the current situation is that the rising rate of the core policy interest rate HICP of the ECB (April: 5.6% year-on-year), the yield of the 10-year treasury bond of Germany (about 2.54%), and the inflation swap sector of the euro area in the first five years (about 2.58%) are lower than each other. Therefore, even from the perspective of real interest rates, the monetary tightening effect on the real economy is limited. Compared with the United States, where the yield of the 10-year treasury bond is always higher than the positive real long-term interest rate, and the growth rate of accommodation expenses of the largest component of the consumer price index with strong price stickiness is slowing down, the environment for the acceleration of keynote inflation is easy to say. The economic and price forecasts of the Eurozone have softened, and the achievement of policy goals can be foreseen before the ECB envisions a situation where "several" interest rate hikes in the future exceed the necessary additional measures.
■ Continue to seek policy responses to curb inflation while maintaining negative real interest rates.
In the euro area, the growth rate of service prices will not stop. The core consumer price index (HICP, April: 5.6% higher than the previous year), excluding food, energy, alcohol, and tobacco, which represent basic inflation, continues to maintain high growth. In addition, in the medium and long term, the expected inflation rate is strengthening its upward trend.
According to the Consumer Expectation Survey (CES) released by the Bank of China (ECB) in Europe, the expected inflation rate of consumers in the next three years shows signs of peaking out in 2023. However, in the latest data in March (with an average of 4.3% and a median of 2.9%), the level of significant appreciation appears to be approaching the peak of 3.0% in the second half of last year. In addition, the inflation swap sector ECB in the first five years of the Eurozone, as a long-term expected inflation rate, will continue to rise in the financial market, even after the appreciation level after Russia's invasion of Ukraine in February last year. It has now reached 2.57%, which is the highest-level range in history. Since March this year, there has been a change in the inflation swaps of the Eurozone for the past five years, the inflation swaps of the United States for the past five years, and the BEI of the 10-year price-linked treasury bonds. In reverse, there are signs that long-term expected inflation in the euro area is outpacing that in the US.
As long as we judge from these data, there are currently no signs that the euro zone's key inflation will converge to the 2% inflation target in the future. Given the policy guidelines listed by the ECB, it is currently believed that there is no suspension of interest rate hikes. In addition, the current situation is that the rising rate of the core policy interest rate HICP of the ECB (April: 5.6% year-on-year), the yield of the 10-year treasury bond of Germany (about 2.54%), and the inflation swap sector of the euro area in the first five years (about 2.58%) are lower than each other. Therefore, even from the perspective of real interest rates, the monetary tightening effect on the real economy is limited. Compared with the United States, where the yield of the 10-year treasury bond is always higher than the positive real long-term interest rate, and the growth rate of accommodation expenses of the largest component of the consumer price index with strong price stickiness is slowing down, the environment for the acceleration of keynote inflation is easy to say. The economic and price forecasts of the Eurozone have softened, and the achievement of policy goals can be foreseen before the ECB envisions a situation where "several" interest rate hikes in the future exceed the necessary additional measures.