Low’ risk of deflation in the euro area – SocGen

By FXStreet Research Team at Societe Generale, suggests that various measures point to only low levels of deflation risk in the euro area.

Key Quotes

“With the persistent weakness in energy prices, as Brent last month touched a multi-year low (below $30 per barrel), and low market expectations (5y5y at 1.5%), talks about the possible risk of deflation appear to have resurfaced.

We focus on gauging the deflationary risks in the euro area by looking at five measures, namely: deflation vulnerability index, index of weighted items with negative annual rates of change, market expectations, economists’ expectations and lastly, business and consumer surveys.

Looking at the abovementioned measures, it is clear that some of the risk indicators have inched up on the back of low energy prices but overall remain at low levels: the percentage of weighted core items with negative annual growth rates remains well below levels seen in historical episodes of disinflation; economists’ expectations are still for lowflation in near term and a noticeable Recovery in the medium term; the labour markets are tightening gradually and the economic recovery is also gaining momentum. Nominal disposable income growth is still positively oriented, which is a major difference with the Japanese situation.”
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Source:: FX Street