A 2% inflation rate is the dream of western economies. This level is often referred to as the justification for normalizing monetary policy, i.e. simply lowering interest rates and cheaper credit. However, what is getting closer in Europe is distancing itself in Canada.
The eurozone is getting closer to success
Yesterday’s inflation data shows that the pace of disinflation, or slowing price growth, is being maintained. Currently, prices are only increasing by 2.4%, which brings us very close to the critical 2% threshold that frequently appears in monetary policy relaxation announcements. Looking at the economic statistics of the eurozone, high-debt countries, particularly in the southern part of the continent, will soon feel pressure to resort to cheap credit again. If there were interest rate cuts in Europe, one could expect capital flight across the ocean. As a result, the Polish zloty would likely depreciate. However, recent statements from the European Central Bank are pushing this scenario away in time. The question remains whether this change in expectations will only strengthen the reaction to future cuts.
A Surprise in Canada
Contrary to market expectations, yesterday’s data did not show a drop in inflation in Canada. The market expected the new level to be 2.9%, making it the second-lowest result since the start of inflation’s upward trend after the June bottom. Ultimately, however, we ended up with 3.1% – a figure equal to last month’s. Such a result is not a disaster. 3.1% inflation is something that can occur in countries like Canada. However, it’s worth noting that markets were expecting decreases and were somewhat tying them to the related interest rate cuts in the country. Following yesterday’s data on price increases, the Canadian dollar strengthened due to dollar purchases, given that the cuts mentioned were moving away.
No Surprises in Hungary
The central bank in Hungary is currently carrying out a cycle of interest rate cuts. With every session, it lowers the main rate by 0.75%. While this may seem like a strong decision – particularly when considering what happened in Poland after such a cut – it should be taken into account that this move was initially announced. On the other hand, the Hungarians began to reduce from 13%, unlike the Poles who started from 6.75%. Currently, after the third move in the series, the main rate has already fallen to 10.75%. While this is still the highest result in the European Union by a large margin, with a big distance to the Czech Republic and Romania with rates at 7%, there are two countries in Europe which have higher levels – Russia and the object of its aggression, Ukraine. As often happens with anticipated decisions, the market did not react to them too strongly.
Today’s macroeconomic data calendar does not include any significant readings.
Maciej Przygórzewski – Chief Analyst at InternetowyKantor.pl and Walutomat.
