Inflation rate: Expert discusses rise in April
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The warning was issued by Generation Frexit leader Charles-Henri Gallois who claimed sustained high inflation in the eurozone could lead to the euro “exploding”. Sharing an article by BFM businesses warning about the rise of prices by 4.2 percent in the US due to an inflation spike, Mr Gallois warned the same fate will await EU countries that have adopted the common currency.
The article also warns: “The latest figures from the United States speak for themselves: in April, prices rose 4.2 percent over one year.
“A first since September 2008 which has made the markets particularly nervous in recent days.
“Within the eurozone, although more moderate, inflation (+ 1.6 percent over one year) also seems to be accelerating.”
Mr Gallois echoed: “If inflation reached the eurozone for a long time, this could lead to the euro exploding.
“More inflation means higher interest rates and southern countries no longer able to finance themselves will cause forced exits from the eurozone in order to be able to monetise.”
A lessening of inflation fears saw eurozone government bond yields edge down for the third day in a row on Tuesday, with Italy’s 10-year yield down 5 basis points, as the market continued to calm down from last week’s sell-off.
Last week, Germany’s 10-year Bund yield rose to two-year highs, while Italian yields rose to their highest since September, as investors bet stronger economic growth could prompt the European Central Bank to slow the pace of its emergency bond purchases soon.
But yields started falling on Friday when European Central Bank (EC) president Christine Lagarde said it was still too early for the ECB to discuss tapering the stimulus.
ECB policymaker Yannis Stournaras said on Tuesday that he did not see any reason to change the bank’s bond-buying programme.
Germany’s benchmark 10-year Bund yield was down 2 bps at -0.158 percent at 1130 GMT, its lowest in 13 days.
Italy’s 10-year yield dropped below one percent for the first time since May 13 and was down 4 bps at 0.9738 percent.
The 10-year Dutch bond edged into negative territory for the first time since May 12.
US Treasury yields likewise were a touch lower after Federal Reserve officials made dovish comments, affirming support for keeping monetary policy unchanged.
Investors are now waiting for any policy hints from ECB chief economist Philip Lane, who is due to speak at 1400 GMT.
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Peter McCallum, rates strategist at Mizuho said: “The ECB tapering expectations eased off and in turn that should see spreads tighten. We think eurozone bonds will outperform those in the US and UK based on a more dovish ECB.
“We generally think yields are going to go higher as the Summer data shows positivity in Europe, but with the ECB support in the near-term we’d probably be long for this week.”
ECB rate-setters will review the pace of emergency bond purchases at their June 10 meeting against an improved economic backdrop.
Growth and inoculation rates are rising in the bloc as COVID-19 cases fall.
The German economy shrank more than expected in the first quarter as coronavirus-related restrictions spurred householders to put more money than ever into savings, data showed on Tuesday.
Germany’s Ifo survey showed that German business morale improved more than expected in May – but the data did not affect bonds.
ING strategists wrote in a note to clients that eurozone bond markets are more able to withstand good economic news because of technical factors such as light supply and it being near the end of the month.
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