Europe May See 1.1 Trillion Euros of Monetary Boost

Investor enthusiasm cheered European markets after rumors surfaced that the European Central Bank will inject as much as 1.1 trillion euros in the European Union.

The ECB, which will announce its plans today, will spend the money purchasing assets throughout the European Union in an effort to boost the Eurozone. While the ECB has not made an official comment on the rumor, many news outlets have already reported the asset purchases agreed upon by ECB President Mario Draghi and the ECB Executive Board.

Investor enthusiasm cheered European markets after rumors surfaced that the European Central Bank will inject as much as 1.1 trillion euros in the European Union.

The ECB, which will announce its plans today, will spend the money purchasing assets throughout the European Union in an effort to boost the Eurozone. While the ECB has not made an official comment on the rumor, many news outlets have already reported the asset purchases agreed upon by ECB President Mario Draghi and the ECB Executive Board.

Price Pressure

By many accounts, prices began falling throughout the European Union in both the Eurozone and beyond it, prompting fears of a deflationary spiral and a return to recession throughout Europe.

In the Eurozone, the consumer price index fell 0.1% sequentially in December and was down 0.2% on a year-over-year basis, driving the key metric negative for the first time since 2009.

In Britain, inflation fell to 0.5%, its lowest point since 2000. The Bank of England announced that inflation is likely to fall further, as prices are facing downward pressure due to lower commodity costs. The UK has seen greater competition in the retail sector, particularly amongst supermarkets.

Despite the lower prices, German policymakers have dismissed worries about deflation and publicly resisted calls for a broad QE program, with some hinting that the program would be illegal. Last week, German Finance Minister Steffen Kampeter said in an interview that the ECB is seeing “modest price development” and not a deflationary spiral, noting that core inflation is rising.

Japan Inflation Warning

In Japan, disinflation trends persist despite an aggressive monetary policy of quantitative easing, which the Bank of Japan raised to 80 trillion yen ($682 billion) late in 2014. The central bank said inflation is likely to fall to 1% for the fiscal year 2015, down 41% from the previous year’s rate. The yen rose on the news, despite broad market expectations of a weakening currency. The Nikkei 225 also fell slightly on the news.

While the Bank of Japan has increased its quantitative easing program in the past, some analysts believe it still is not enough, forcing the BOJ to increase its asset-purchasing program in 2015, particularly to offset weakness in the euro caused by a QE program in the Eurozone. However, the BOJ said Wednesday that it would not increase its stimulus plan.

In the United States, inflation has remained positive although it has slowed strongly in recent months, and many analysts expect the rate of inflation to remain muted throughout 2015, driven by cheap oil and low input costs. Stagnant wages are also a factor keeping price growth muted throughout the U.S.