This week’s European Central Bank (ECB) meeting comes at an interesting time, as the bank meets to potentially discuss scaling back quantitative easing (QE) barely a month after a new government in Italy threatened to up-end the delicate consensus in the eurozone.
Usually, hints on policy come from anonymous ‘ECB sources’, but last week’s decision by the chief economist, Peter Praet, to make statements about the QE programme could represent a major shift. It looks like the bank is prepared to discuss moving towards an end date for its QE programme, even if that date is still further away than many expect.
To give the ECB its due, it does look like the eurozone recovery is firmly in place. As we discussed in a previous article, the eurozone economy is still seeing increased strength, with unemployment falling overall and consumer spending rising. Even recent weakness in the composite purchasing managers index (PMI) is not necessarily a cause for concern, given the overall strength of the past year.
Inflation has also begun to pick up, with consumer price index (CPI) rising to 1.9% for May, close to the bank’s 2% target. Sustained price growth above this level has yet to be seen, but the overall trend is still higher from the lows of early 2016.