Deflation looms as unemployment remains high

Euro zone consumer price inflation dropped in January, bucking market expectations for a rise and providing a possible trigger for further easing by the European Central Bank to sustain a fragile recovery and ward against deflation.

Mario Draghi

Consumer price inflation in the 18-country bloc fell to 0.7 percent year-on-year in the first month of 2014, down from 0.8 percent in December, data from the EU's statistics office Eurostat showed on Friday.

Inflation last touched the 0.7 percent level in October, which was the lowest inflation reading for the single currency area in nearly four years.

The euro, reacting to the data, fell to a 10-day low of $1.35175 from around $1.3540. It fell more sharply against the yen, dropping to a two-month low of 138.53 yen, down from 138.88.

The drop in January was prompted by a 1.2 percent fall in the highly volatile price of energy, which was flat in the previous month. The cost of food, alcohol and tobacco products were up by 1.7 percent on the year.

Although ECB President Mario Draghi said in January deflation was not threatening the euro zone, a number of countries are already suffering deflation and the International Monetary Fund warned deflation was a potential risk.

The ECB, which cut its key interest rate to a record low of 0.25 percent in November, is expected to stay put until mid-2015 unless money market rates rise and the euro strengthens.

In Germany, Europe's largest economy, consumer prices fell by 0.7 percent on the month, keeping the annual inflation rate steady at 1.2 percent, with both figures coming below expectations.

A separate Eurostat data release showed on Friday that the unemployment rate in the euro zone was stuck near a record high at 12 percent for the third month running. It is widely expected to ease only very modestly in the coming quarters.

Some 19 million people are out of work in the euro zone, slowing the uneven recovery as Europeans remains cautious and thrifty, proving only a limited boost to economic growth.

American Property buying slows as Fed turn off the taps

Fewer Americans signed contracts in December to buy previously occupied homes, suggesting a slowdown in real estate according to the The National Association of Realtor(USA)

 Pending home sales fell to the lowest point since October 2011. 

The NAR's  seasonally adjusted pending home sales index dropped 8.7 percent last month to 92.4. 

That's the seventh straight monthly decline for the index, which previews upcoming sales.

 Rising mortgage rates and price increases crimped sales in recent months.

 Cold weather in December also stalled home purchases.

 Sales of previously occupied homes totaled 5.1 million in 2013

That's the highest in 7 years, but it's still below the 5.5 million that is consistent with a healthy housing market. 

The average interest rate on a 30-year mortgage dropped to 4.32 percent this week from 4.39 percent the previous week. Rates surged about 1.25 percentage points from May through September, peaking at 4.6 percent. 

That increase occurred after Federal Reserve Chairman Ben Bernanke indicated that the Fed would start to slow its bond-buying program before the end of the year. The Fed has reduced its monthly bond purchases from $85 billion to $65 billion in its last two policy meetings. The program is intended to push down longer-term interest rates and encourage more borrowing, spending and hiring.

Irelands growth modest but further looks bright

According to the Central Bank of Ireland's Quarterly Bulletin 1 2014.

Ireland has emerged from the EU/IMF Programme against a background of increased market confidence in the outlook for the country’s economic performance and policy prospects. 

This has been reflected in an improvement in the market’s assessment of Ireland’s credit worthiness, helping the Sovereign and domestic banks to regain access to market funding at, increasingly, more favourable rates. 

General Government Deficit is on track to fall below 3 per cent of GDP by 2015 once there is continued adherence to the policies that were in place during the Programme.

This is also true for returning the banking system to a position where it can support the economy with adequate lending, and getting the rate of employment well up from the low level to which it had fallen in the crisis.

 The public finances, the latest estimates suggest that the General Government Deficit for 2013 should come in below the 7.5 per cent of GDP target under the Excessive Deficit Procedure.

Projections indicate that the debt-to-GDP ratio has peaked and at a slightly lower level than previously expected.

The Irish economy is forecast to grow by 2.1 per cent this year as consumer spending and business investment increases.

In the banking sector, while liquidity and funding conditions have improved, the key issues revolve around the need for further progress in dealing with the resolution of impaired loan.

In accordance with the mortgage arrears resolution strategy and targets, the Central Bank has continued to require the banks to accelerate their work to ensure the conclusion of sustainable long-term arrangements.

 The Bank is also monitoring ongoing steps to cure and resolve legacy debt problems of small firms.

Moderate wage growth and reductions to the cost base of the economy have helped restore some of the competitiveness lost during the boom.

 The most recent data indicate that employment has grown strongly over the past year