What’s going on?

Fresh data out on Tuesday showed eurozone inflation hit its highest in a decade in August, but the European Central Bank (ECB) maintains there’s absolutely nothing to see here.

What does this mean?

The prices of goods and services in Europe’s 19 euro-spending countries climbed by a higher-than-expected 3% last month compared to a year before. That was the biggest jump since 2011, and a notable bump from the 2.2% of the month before. The usual suspects were to blame: rising energy prices and a strong rebounding economy that’s increasing demand for just about everything, all while suppliers struggle to keep up. Throw in a boost in demand in Germany following a temporary tax cut in the second half of last year, and it’s no surprise prices are ticking up so fast.

Why should I care?

The bigger picture: Get with the times, ECB.
This is the second time inflation has overshot the ECB’s new target of 2% this year, but you wouldn’t know it: the central bank is still insisting that a spike in prices is a temporary consequence of the pandemic, and it’s sticking to its current policies of ultra-low interest rates and substantial monthly bond purchases. That, even as the US Federal Reserve hinted last week that it’ll be tapering its bond-buying program before the end of the year.

For markets: Are you sitting comfortably?
If the ECB does start slowing down its bond-buying program earlier than expected, it’ll remove a major source of demand for European bonds, driving down their prices and pushing up their yields. It could have a knock-on effect on the stock market too, with investors tempted to rotate out of stocks and into bonds with now-more-attractive returns. And considering an index of major European stocks has just posted its longest winning streak since 2013, there could be a long way to tumble if they do…

For information purposes only, not intended to constitute financial advice from us. The customer should assess the risk of  potential loss carefully and individually before investing in any financial products. Dabbl Group Limited is authorised by the FCA under the reference numbers 767263 as an appointed representative of its Principal firm VIBHS Financial Ltd, which is authorised and regulated by the Financial Conduct Authority under the reference number 613381.

Leave a Reply

Post info

Share this post

Share on facebook
Share on google
Share on twitter
Share on linkedin

Recent Posts

Follow Us

What's it all about?

For those who dabbl, life is full of opportunities.

dabbl brings you a fresh new look to investing. Jargon free, no nonsense information to help you make your own investing decisions.