ECB heads for the exit despite weak inflation

Updates from a recent ECB Watcher's conference, and a look at so-called “super core” inflation

ECB heads for QE exit despite weak inflation

In this podcast, we discuss the key takeaways from "The ECB and Its Watchers" conference, attended by Chief Analyst Jan von Gerich: A more confident ECB is heading for its exit from quantitative easing, despite low inflation. We also take a look at a new research piece on so-called "super core inflation" in the Euro area, by Chief Analyst Anders Svendsen, and discuss how it still all adds up to our very dovish ECB view. Senior Analyst Tuuli Koivu leads the discussion.

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A more confident European Central Bank is heading towards its exit from ultra-loose monetary policy, even as inflation continues to run below target.

That was the main takeaway from “The ECB and Its Watchers” conference, according to Nordea Markets’ Chief Analyst Jan von Gerich, who attended the event last week along with high-profile guests including ECB president Mario Draghi and other ECB members.

“The ECB currently has a very optimistic tone. They see clear upside potential for the economy and have increasing confidence inflation is returning to their target,” von Gerich said in a recent podcast recapping the event.

If their expectations are realized, then the ECB could be on its way to stopping its net asset purchases with a gradual tapering after September, he added.


The ECB currently has a very optimistic tone. They see clear upside potential for the economy and have increasing confidence inflation is returning to their target.

- Nordea Markets Chief Analyst Jan von Gerich

However, inflation remains critical for the ECB’s next steps. And signs of a pick-up in inflation are tentative at best, says Chief Analyst Anders Svendsen, who also participated in the podcast.

“I don’t think ECB can be completely happy with inflation – and especially core inflation – still so much below target. The hope is that with strong growth, we’ll see a clear pick-up in wages and, in turn, core inflation,” he said.

Svendsen took a deep dive into the concept of “super core” inflation in a recent research note. The term refers to a stripped-down measure of inflation that only takes into account the prices that actually respond to the business cycle.

Super core inflation should reveal whether prices are picking up in response to the current strong growth, or whether something has changed structurally.

“Looking at this measure, we do find that inflation is picking up – though more modestly than the ECB would like,” said Svendsen.

The Nordea outlook for Euro-area inflation is that it remains pretty fragile, according to Senior Analyst Tuuli Koivu, who hosted the podcast. And that shapes our ECB view, which is quite dovish compared to other analysts, she added.

We expect the ECB’s asset purchase program to run until March 2019, and that the first interest ate hike will only come at the end of 2019.

Listen to the podcast.

Read the full research note, Euro-area inflation: Not so super core

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