- Jan 14, 2016
That time of the month again when Mario Draghi faces the press to tell EU citizens \ victims why their currency is worth sweet f-all, and getting worse by the day. December saw a great leap in EU inflation, when the rate went over 1%. This is mostly down to fuel price increases and internal German inflation, which is causing chronic property bubbles in places like Munich.
The ECB's inflation target is 2%, the same as the target of the US FED. You might think that inflation is a bad thing and should be avoided. And that's certainly true if you are an old aged pensioner, or someone else on a fixed income, or living from your savings. But, if you owe lots of money, as most states and companies do, then inflation is a good thing as it effectively lowers your debt. Inflation is a way to rob the old aged pensioners and give the money to states and corporations.
The effect of inflation on a currency is that is allows central banks to increase interest rates - to curb inflation - and increased interest rates mean that the currency is more valuable. But, before that happens, increased inflation will allow the ECB to "taper" its quantitative easing (QE) program, i.e. money printing program. At December's ECB meeting it was announced that the ECB would be tapering corporate bond buying from 80 billion euro a month to 60 billion euro a month, but extended the original end date of March 2017 to the end of 2017. Again, any tapering \ cutting back in QE will tend to increase the value of the Euro.
So the markets will be listening very keenly today to hear if Mr. Draghi will drop any hint that QE is to be further reduced.