QE plus more likely from ECB than taper – Part 2

In previous part of QE plus more likely from ECB than taper I introduced the idea back in July, sighting high unemployment in the region. Check out the article at http://www.econotimes.com/QE-plus-more-likely-from-ECB-than-taper-65345.

Though unemployment is not European Central Bank's (ECB) core objective or part of mandate, in reality in the background it is. We firmly believe a stable and desired form of inflation is unattainable without bringing back jobs to people.

There are no doubts that ECB's QE is working its way through real economy, with almost all indicators providing evidence of such, however growth hasn't picked up considerably given weakness in global economy, especially in China and emerging markets.

Now inflation, which earlier posed some strength, is now back in such state, which favors our case and argument. After initial pickup from deflationary zone it is still low enough to keep fearing its return, given lower energy prices.

Evidence of weakening inflation -

• Back in January, Italian consumer prices dropped sharply by -2.5%. Watching the level of deterioration in price, ECB finally introduced asset purchase program in late January and began purchase on March.
• Immediate reaction to inflation was fabulous, In March prices rose by 2.1% from February. Even if you discard that as outlier and low base effect, prices kept rising till June, after which it has started deteriorating along with fall in energy prices.
• Latest report shows, Inflation actually dipped in August by -0.1%, making it two consecutive monthly drop.

Though we have used Italy's example, story is similar across Euro Zone.

With inflation now taking up U-turn and unemployment at very high, ECB really need to step up its asset purchase if further headwinds arrive from China.