05.01.202223:25 Forex Analysis & Reviews: Inflation pressure eases in France, Eurobank promises quick victory

Francois Villeroy de Galhau, who is a current member of the Governing Council of the European Central Bank, expressed surprise at the strength of the surge in inflation in the euro area, and promised that prices are already close to their peak.

Inflation pressure in France is decreasing, Eurobank promises an early victory

Reports on consumer prices in France for December, published on Wednesday a little earlier, show the first signs of price stabilization. This served as the basis for the soothing rhetoric of the ECB. Recall that the New Year's address of the head of the French central bank, posted on the institution's website, contained promises that the "upward pressure" would disappear by 2022, the head of the French central bank promised in a New Year's address posted on the website of his institution.

According to a separate study of confidence in the future among French households, the opinion of the latter is also optimistic and relies on a future decline in price growth in the coming months.

"Inflation is now close to its peak in our country and in the euro area," Villeroy said on Tuesday. "While remaining vigilant, we believe that supply difficulties and pressure on energy carriers should gradually decrease over the course of the year."

Of course, the urgency of inflation at the end of 2021 brought the Eurobank the long-awaited freedom of action in order to chart a course at the December meeting to abandon monetary stimulus of the economy. It is expected that the exit will begin with the expiration of the net asset purchase period under the central bank's emergency Covid-19 program.

But experts are confident that price stabilization does not mean a change of policy and the course towards curtailing the "buns" regime will continue. In fact, Villeroy only repeated his forecast for a "new inflation regime", in which price increases will be closer to the ECB's target of 2% than in the years leading up to the pandemic. According to him, on this basis, monetary policy will "gradually normalize."

The chairman of the French central bank also ignored the threat of disruption of the Omicron variant, saying that the economic effects would be "relatively limited." The Bank of France expects that even in an unfavorable scenario, worse than the current situation, by 2023 the economy will still return to the pre-crisis growth trajectory.

"Over the past two years, we have learned that every wave of Covid, no matter how serious, has diminishing economic consequences," Villeroy said.

It is difficult to disagree with him on this, as evidenced by the revival of air travel even after the news that the United States canceled more than 800 flights at the end of December.

According to the monthly survey of purchasing managers published on Wednesday by IHS Markit, economic growth in the euro area slowed to a nine-month low in December. In addition, the price data showed significant inflationary pressure at the end of 2021.

"Despite the slight easing of price pressures, we are still in an extremely hot zone - the increase in costs for both input and output goods was the second largest on record," said Joe Hayes, senior economist at IHS Markit.

In fact, there are plenty of reasons to worry. Energy prices have reached highs. Italy reported on this effect today. And although gas prices in France are stabilizing, the harsh winter may force the southern regions to consume more gas and electricity. And price stabilization may be short-term.

So far, the weather in the eurozone is pleasing, but energy prices remain five times higher than normal.

In addition, in the new year, investors have clearly made Canada and Russia favorites for raw material opportunities, which pulls funds from the European zone. There is also a shortage of goods and services. And it risks rising due to a shortage of raw materials and workers if the economy continues to recover. Of course, this effect will be short-lived, but it is too early to say that inflation is behind us. Moreover, its indirect signs, such as the migration of workers, are growing.

Against the background of the news, the FTSE 100 rose by 0.28%. FTSE 100 futures rose even more - by 0.32%, and EuroStoxx 50 futures added 0.75% at the end of the trading session. Probably, tomorrow's session will also be successful for the euro.