The ECB has been preparing for the possibility that more stimulus will be needed to reach its medium-term inflation target of near 2%.
"A firmer-than- forecast rise in the flash euro area October CPI this morning, however, would stack up against any recent calls for further policy easing. The upside risk to our headline and core forecast of 0.0% and 0.9%, respectively, have risen after data yesterday revealed a larger-than-expected pick up in headline German CPI", said Lloyds Bank in a research note.
Shifts in the core rather than headline CPI rate, however, will matter more in terms of ECB policy as the former strips out the volatile effects of food and energy prices. Ahead of euro area CPI data, German September retail sales, Spanish Q3 GDP, and the Lloyds October business barometer are scheduled for release
Expect increased focus on U.S. data and events after the FOMC this week showed less concerns over global growth conditions and left open the possibility of an interest rate hike in December. Typically, US personal spending and the PCE deflator are closely watched. The importance of the September data today is somewhat diminished, however, coming just after the release of U.S. Q3 GDP yesterday.
"Nevertheless, a modest pickup in the PCE deflator should add to the case for a Fed hike in December. Potentially more interesting could be comments from San Francisco Fed President Williams this afternoon, which might cast further light on the potential timing of policy tightening in the U.S., says Lloyds Bank.
