首页 News 正文

Why the divergence between US and European inflation has reversed

芊芊551
279 0 0
Financial markets have grown accustomed to higher inflation and interest rates in the United States than in Europe. Now they may need to change their minds. Not only is inflation in the US now lower than in the eurozone, but it may remain so in the future.
This could cause bond market spreads to narrow or even reverse, and the euro could continue to fall against the dollar.
From the early 2000s through 2019, consumer price inflation in the United States averaged 2.2 percent. Inflation in the eurozone and Germany is much lower, at 1.7% and 1.5% respectively.
After peaking in 2022, US inflation fell to 3.7 per cent in August. By contrast, inflation in the eurozone is still 5.2% and in Germany 6.2%. Us core inflation, which excludes food and energy prices, is also lower.
There are three reasons why inflation will also be lower on the other side of the Atlantic in the future.
First, to fight inflation, the Fed has been more determined than the European Central Bank to raise rates. In September America's benchmark interest rate was 1.8 percentage points above inflation, while the euro area's was 1.2 percentage points below it. Although the European Central Bank raised its key interest rate again at its latest meeting, it sent a signal to the market that it may have reached its peak. The Federal Reserve recently left its benchmark interest rate unchanged but said it was on track to raise it further.
Second, the Fed has so far reduced its holdings of bonds purchased to increase the money supply by about 12 per cent. By contrast, the European Central Bank has reduced its holdings by just 6 per cent.
The pace of future bond sales by the ECB is also likely to slow. In its 1.7 trillion euro pandemic plan, the ECB wants to replace maturing bonds with new purchases by the end of 2024 to keep interest rates low for the euro zone's heavily indebted countries.
Third, structural inflation in the eurozone is likely to remain higher than in the US because of expensive commodity imports, higher prices for carbon allowances, and rising wages due to Labour shortages.
In the past, high inflation in the US has been associated with high interest rates. For example, ten-year US government bonds issued between 2000 and 2019 yielded an average annual yield of 3.4%, while the corresponding German bunds yielded only 2.6%.
Today, US Treasuries yield 4.6 per cent and German Bunds 2.8 per cent. Once markets adjust to the reversal in inflation differentials, German Bund yields could rise to or exceed US levels.
That would be hard for eurozone politicians to accept. As a result, the pressure on the ECB to keep rates low will increase further.
If the ECB caved in, the combination of high inflation and low interest rates would cause the euro to depreciate against the dollar.
The euro has appreciated 10% against the dollar since its last low in September 2022. However, the euro has lost 31 per cent of its value against the dollar since its record high in March 2008.
The euro's decline is likely to continue as markets adjust to the reversal of the inflation divergence between the eurozone and the US, and as politicians in the eurozone's heavily indebted countries block the ECB from effectively fighting inflation.
CandyLake.com 系信息发布平台,仅提供信息存储空间服务。
声明:该文观点仅代表作者本人,本文不代表CandyLake.com立场,且不构成建议,请谨慎对待。
您需要登录后才可以回帖 登录 | 立即注册

本版积分规则

  •   知名做空机构香橼研究(Citron Research)周四(11月21日)在社交媒体平台X上发布消息称,该公司已决定做空“比特币大户”微策略(Microstrategy)这家公司,并认为该公司已经将自己变身成为一家比特币投资基金 ...
    caffycat
    昨天 11:18
    支持
    反对
    回复
    收藏
  •   每经AI快讯,11月20日,文远知行宣布旗下自动驾驶环卫车S6与无人扫路机S1分别在新加坡滨海湾海岸大道与滨海艺术中心正式投入运营。据介绍,这是新加坡首个商业化运营的自动驾驶环卫项目。 ...
    star8699
    3 天前
    支持
    反对
    回复
    收藏
  •   上证报中国证券网讯(记者王子霖)11月20日,斗鱼发布2024年第三季度未经审计的财务报告。本季度斗鱼依托丰富的游戏内容生态,充分发挥主播资源和新业务潜力,持续为用户提供高质量的直播内容及游戏服务,进一步 ...
    goodfriendboy
    3 天前
    支持
    反对
    回复
    收藏
  •   人民网北京11月22日电 (记者栗翘楚、任妍)2024广州车展,在新能源汽车占据“半壁江山”的同时,正加速向智能网联新能源汽车全面过渡,随着“端到端”成为新宠,智能驾驶解决方案成为本届广州车展各大车企竞 ...
    3233340
    昨天 17:06
    支持
    反对
    回复
    收藏
芊芊551 注册会员
  • 粉丝

    0

  • 关注

    0

  • 主题

    44