Euro zone inflation falls to 1.2% in February

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A persistent critic of the ECB's lavish bond purchase scheme, Weidmann argued that broad-based and rapid growth should ensure that inflation rises back to target so the bank could take another step on a long road to unwinding unconventional stimulus.

LONDON, Feb 26 (Reuters) - Euro zone government bond yields drifted lower on Monday with Germany's benchmark Bund yield briefly touching a one-month low, as investors positioned for a run of potentially market-moving data and events this week.

Indeed, data published on Tuesday show both corporate and household lending growth at a post-crisis high, suggesting that the ECB's efforts are paying off, even if slower than expected. At the same time, Italy's inflation dropped markedly to 0.7 percent from 1.2 percent.

"In the USA we have at least three rate hikes this year, but in the euro zone, there was some exaggeration about where the inflation was heading so that is now being priced out and yields are moving to the downside", said DZ Bank strategist Daniel Lenz.

German 10-year bond yields are set to end February down around 4 basis points, their biggest monthly fall since October.

However, with the United States close to full employment, bets are likely to remain in place that President Donald Trump's massive infrastructure spending programme will force the Fed to tighten monetary policy more than planned.

Even as growth looks robust, inflation, the key indicator for the European Central Bank, remains muted.

His statements came a few days before the next monetary policy meeting of the European Central Bank, scheduled for the 8th of March in Frankfurt, during which the institution could finetune its judgement on medium-term inflation and growth ahead of its new macroeconomic forecasts. From the previous year, unemployment fell 1.429 million.

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