ECB’s failure in one graph

ECBs failure

…maybe it is about time the ECB actually tries to ease monetary policy. If you don’t know how here is a plan – and another plan and one more. It is not really very hard.

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  1. What does “2Y2Y B/E inflation” mean?

    • Nick it market expectations for euro zone inflation in 2 years and 2 years ahead. Think of it as average inflation in 2016 and 2017 (so no base effects)

  2. Firmly anchored in which term?
    This is Draghi in yesterday’s presser:

    “And if we consider the HICP, excluding food and energy, we would have 0.8%, unchanged from the previous month. But having said that, there is no doubt that inflation is low and will remain low.

    Inflation expectations, however, over the medium to long term, remain firmly anchored. In the short term, we observed a decline in inflation expectations because, as is quite natural, they are heavily determined on the basis of current inflation.

    On a specific point that was raised by a usually accurate market observer, also if we look at five-year inflation expectations, derived from the break-even of the linkers, we would observe a 0.5% inflation expectation. This was a quite interesting point, but at least we think the calculations should be done differently. We should observe, not one issue, but the overall, the universe of issuances of linkers with that maturity. And this would show that the expectations over the five-year horizon are still anchored at 1%.

    So we haven’t observed any decline on the medium- to long-term expectations. Long-term expectations remain anchored at 2%. Other expectations remain anchored at the previous levels. Short-term expectations, indeed, have declined.”


    • Johannes, it is a truly stunning comment from Draghi. If the market is telling us that we have a credibilty problem then we just claim the market is wrong. Terrible – truly terrible.


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