The ECB expects another year of failure

A James Alexander post

The ECB released its Quarterly Survey of Professional Forecasters today. It shows a major drop in inflation expectations for the EuroZone for 2016.


JA Japan_1

On the good old principle that next year will be much like the last year, as 2016 approaches professional economists (and the ECB’s) own teams have ‘fessed up’. They got 2015 horribly wrong. Having shot for 1.2% in 2015 this time last year the actual result is now coming in at 0.1%!

The ECB publishes their interpretation of EZ breakeven inflation rates once a month. These market-based measures appear to have been better forecasters. Around this time last year the “one-year rate two years ahead” was implying less than 1% inflation in the short term. They have been weak again so the economists are now following them down. All except one (red line) show the ECB missing even its own self-defeating target of “close to, but below, 2%”.

JA Japan_2

3 thoughts on “The ECB expects another year of failure

  1. Thanks. Is there a place where one can look up inflation-based swap rates that are updated on, say, a daily or hourly basis?

  2. I can’t find one for free. Deutsche Bank helpfully do one for the US.
    https://index.db.com/dbiqweb2/servlet/indexsummary?currencyreturntype=USD-Local&reportingfrequency=1&returncategory=TR&reconfigurepage=Refresh+Page&history=7&indexStartDate=08%2F09%2F2015&priceDate=10%2F23%2F2015&pricegroup=DBRVRT&redirect=benchmarkIndexSummary&indexid=8196&previndexid=8196&prevHistory=7&prevIndexStartDate=10%2F09%2F2015&rebalperiod=3&prevcurrencyreturntype=USD-Local&prevreportingfrequency=1&prevreturncategory=TR&previndexStartDate=10%2F09%2F2015&prevpriceDate=10%2F23%2F2015&indexInceptionDate=20041101&indexLaunchDate=20111212

    It’s tricky to keep picking new benchmark bonds for the relatively small number of index-linked securities, creating the scepticism in some parts about the whole concept of market-implied inflation. And then for the Eurozone you have the very limited number of risk-free EZ-wide issuers. I am not sure of the mechanism of creating EZ-wide proxies, adding the different countries together, for both normal and index-linked bonds, but I suspect it’s not straightforward.

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