Euro zone inflation gauge tracked by ECB hits lowest since 2016


By Dhara Ranasinghe

LONDON, Jan 29 (Reuters) - A key gauge of the market's long-term expectations for inflation in the euro area fell on Tuesday to its lowest level since late 2016, in a further sign that weak economic data globally is weighing on the inflation outlook.

The euro zone economy has performed worse than expected in recent months and global uncertainty is weighing on economic sentiment, European Central Bank President Mario Draghi said on Monday, repeating the bank's recent warnings about growth.

The five-year, five-year breakeven forward, a market gauge tracked closely by the ECB, fell to 1.5059 percent on Tuesday.

That is its lowest level since October 2016: the year the ECB expanded its bond-buying stimulus scheme to stave off the threat of deflation in the currency bloc.

The five-year, five-year breakeven forward measures expected inflation over a five-year period that begins five years from today.

While the gauge remains well above lows of around 1.25 percent hit in 2016, it is also well below the ECB's inflation target and peaks near 1.8 percent hit a year ago.


Some analysts point out that the drop in the five-year, five-year breakeven forward towards 1.5 percent compares with an average and relatively stable 1.7 percent through 2018.

"One should not expect inflation to pick up too early," said Matthias Weber, assistant professor of finance at the University of St.Gallen. "We've seen how hard it is for the ECB to achieve its inflation target."

This article appears in: Stocks , World Markets , Economy

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