CYPRUS: CPI down in December

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 * Euro unmoved as German, Spanish inflation craters *

Cyprus showed a massive drop on Monday as the consumer price index came in at -1.5% year-on-year against 0.2% in November and -2.3% in December 2013.


The CPI for December was down 1.88 points or 1.6% dropping to 115.77, compared to 117.65 the previous month.
The statistical service Cystat said the drop was due to lower prices in fuel, electricity bills, some fresh vegetables, some clothing and air faires.
For the 12-month period January to December, the CPI was down -1.4% from the year before.
“Considering the moves overnight it might be a bit surprising that EUR/USD hasn’t moved again on the latest inflation numbers,” said Ryan Littlestone of ForexLive.com.
“The year on year numbers so far from Germany have dropped dramatically. On top of that we had the Spanish flash y/y HICP back on December 30 which came in at -1.1% vs -0.5% prior. It was expected to drop to -0.7%.”
“The falls in inflation aren’t wholly unexpected given the falls in energy prices and that’s why the market is largely ignoring it after the big overnight moves. We get the EZ flash numbers on Wednesday and early expectations are for a drop into the negative to -0.1% from +0.3% y/y. That might start getting adjusted downwards if the numbers keep rolling out like they are today,” Littlestone said.
“The number to watch on Wednesday will be the core inflation number. It held steady at 0.7% last month and if it drops by over 0.2 points or more then that will likely get a bigger reaction from the market. While I like to look at the core number in times like this, to see through the noise of energy price moves, it doesn’t mean we can ignore inflation just because the core doesn’t move.”
“The core is good to watch when energy/commodity prices are volatile but when they are moving in a sustained way the prices will begin to filter down into the core numbers. Prices of manufactured oil or metal products won’t really change if we get temporary moves in the physicals but will if prices move over the longer term. When that happens, Europe will start to really face the deflation threat. This filtering will be lagging by a few months so we may not see the effects just yet. The problem for the ECB is that by the time they are seen it will likely be to late to do anything about it,” ForexLive’s Littlestone concluded.