Eurozone CPI has picked up quite dramatically in recent months from 0.5% in October 2016 and just 3 months later to a very respectable 1.8%. Ok, most of this is base effects of energy and food inflation coming through, but the average CPI rate in the Eurozone has only been 1.7% since 2001. At the ECB meeting in December, Draghi managed to extend the current monetary easing QE policy until the end of 2017 when we coming off the back of very low prints. In other words, he had the cover of very low inflation prints to toughen the stance that more monetary stimulus was warranted.

While the 1.8% rate we saw for January is not exactly anything to worry about and the programme will most likely continue in its pre-announced version, Draghi will no doubt play down the inflation prints, stating this is base effects rather than self-sustaining over the medium term. However the disconcerting voices over the QE policy will become louder and I can easily imagine a scenario in the summer months where the “taper” word is being openly discussed.

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