IT’S hard playing a worldwide reflation trade when consumer prices have yet to stop falling.
Later this week the eurozone is set to record the joint longest period of headline monthly deflation since the single currency was introduced – joining Japan and Switzerland in a pandemic-driven bout of falling prices that will pressure the European Central Bank (ECB) to keep its foot to the floor on monetary policy even as markets bet on recovery.
If consensus forecasts prove correct, the pace of eurozone deflation should have slowed a notch to 0.2% last month – even as aggregate prices remained negative for the fifth month in a row and match a five-month slough in 2009.
Core inflation rates, excluding food and energy prices, will likely cling to positive territory, even though the meagre 0.4% rate expected remains the lowest on record.
Japan and Switzerland have headline and core inflation rates running even more negative than the eurozone.
And the new year hardly bodes well for a pickup in prices, with Covid-19 raging, more severe economic lockdowns and potentially vaccine-resistant variants emerging.