ECB taper remains far as inflation remains low

While growth and inflation returned to Euro zone, both remain too weak and fragile to give an early call off of European Central Bank's (ECB) Public sector purchase program (PSPP) which along with other two purchase programs buying € 60 billion worth of assets per month.

However, recovery in prices is welcoming indication that ECB's program might be working in the right direction.

• Preliminary reading showed, consumer prices rose by 0.2% on the year in June, lower than last month's 0.3%.

• Energy remains major drag on headline CPI. Down -5.1% from a year ago, compared to -4.8% in May.

• However items other than energy have seen significant uptick in prices. Food, Alcohol, Tobacco had highest rate rise 1.2% on yearly basis.

• Services inflation rose by 1% from year ago, but weaker than May which saw rise of 1.3% y/y.

• Price growth was much weaker in non-energy industrial goods at 0.4%, however it is higher than 0.2% seen in May.

ECB is likely to continue its purchase program till September next year.

Any major bond rout is also unlikely given low level of inflation. Euro is currently trading at 1.119 against dollar.