Euro inflation seen testing ECB patience as stimulus takes time

By Stefan Riecher & Giovanni Salzano

When the European Central Bank unleashed a stimulus barrage in June, it cautioned that the economy would take some time to respond. Data due this week may test its patience.

The inflation rate remained at 0.5 percent for a third month in July, according to the median forecast of 42 economists in a Bloomberg survey. The unemployment rate remain unchanged at 11.6 percent in June, a separate survey shows. That may fuel policy makers’ concern that annual price gains will become entrenched at a fraction of the ECB’s goal of just under 2 percent, and increase calls for further action.

The ECB unveiled a range of measures including a negative deposit rate and targeted long-term loans last month. While the package has helped push the average yield on bonds from Europe’s most-indebted nations to a record low and bolstered manufacturing and services in a vote of confidence, it has yet to show its impact on prices, growth and lending, as geopolitical tensions threaten to undermine the recovery.

“Speculation about an asset-purchase program from the ECB is likely to gain further traction,” said Benjamin Schroeder, an interest-rates strategist at Commerzbank AG in Frankfurt. “The crises in Ukraine and the Middle East should remain a driving factor” for the euro-area economy, he said.

The European Union’s statistics office is due to release inflation and jobless data on July 31 at 11 a.m. in Luxembourg. These releases will be preceded on July 30 by reports on euro- area business confidence at 11 a.m. and German inflation at 2 p.m.

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