Comments from the ECB’s Lane on inflation and policy guidance crossed the wires.
We put a very high premium on consensus, would be difficult with dots.
I would put high bar on directional forward guidance now.
Important that ECB has an instrument for multiple equilibriums on bond market.
Informative that underlying inflation hasn’t moved yet, it means it’s the usual delayed response.
Underlying inflation is a guide to 1-year-ahead inflation.
Energy prices already reversing, if that continues you can see headline inflation falling and underlying inflation rising.
People should be looking out for whether inflation is coming in stronger or weaker than projections.
Analysis
Lane is keeping his options open on rates. The barometer for traders is how inflation comes in relative to the ECB’s projections, especially if headline and underlying inflation start moving in opposite directions.
Lower energy prices could bring down the headline rate while the earlier shock is still feeding through to underlying inflation. Lane sees underlying inflation as a guide to where inflation could be a year from now. If that measure starts coming in above projections, a softer headline print alone may give the ECB little reason to signal an easier policy path.
This article was written by Greg Michalowski at investinglive.com.
