The Eurozone is seeing a no-inflation recovery

Berenberg's Christian Schulz says that the Eurozone is now witnessing a "no-inflation recovery" on the back of strong confidence numbers released this morning.

The Eurozone unemployment rate stayed at 12.1% in July. The stable headline rate conceals a second successive monthly fall in the number of unemployed. Whether that fall can last into the autumn after the tourism season ends remains to be seen, but with growth returning, unemployment could peak in Q3.

Eurozone inflation dropped to 1.3% in August, down from 1.6%. A strong base effect in fuel prices was the main driver, but normalising food price inflation in Germany and underlying downward pressures from high unemployment in the crisis countries also contributed. With Spain’s VAT hike of last year fading from the annual comparison next month, inflation could fall a little further still.

The bank's senior economist now says that for the European Central Bank "the situation could hardly be better".

The economy is showing stronger signs of recovery and unemployment is finally stabilising. At the same time, the very low rates of inflation will keep any premature talk of policy tightening at bay. The ECB will keep rates low well into next year, but Draghi might sound a little less dovish next Thursday.