Eurozone Inflation Improved: Why Did ECB Remain Dovish?

On a year-over-year basis, the Eurozone Inflation (VGK) (IEV) Index stood at 1.3% in March as compared to 1.1% in February 2018, according to data provided by Eurostat. The final reading came in under the preliminary reading of a 1.4% rise. After a gradual fall in the inflation index over the last three months, the index recovered marginally in March 2018.

The inflation figure in March was mainly due to the improvement in prices of food, non-energy products, alcohol, and tobacco. Core inflation, which is an important factor for the European Central Bank in its monetary policy decisions, excludes energy, alcohol, tobacco, and unprocessed food. Core inflation was at 1% in March, which was unchanged from February 2018.

The inflation index recovered sharply in March after showing a gradual fall in the past three months. However, the ECB (European Central Bank) is still maintaining its dovish stance. On April 26, the ECB declared that it will keep its bond-buying program until September 2018, and its key interest rate remained unchanged at its April monetary policy review meeting. ECB president Mario Draghi’s recent step suggests that the economy needs more support from monetary policy.

The Vanguard FTSE Europe ETF (VGK) and the iShares Europe ETF (IEV), which track the performance of the Eurozone (N100-INDEX), fell 0.34% and 0.32%, respectively, in March 2018.

In the next part of this series, we’ll analyze Eurozone consumer confidence so far in April.