THE credibility of one of the European Central Bank’s favorite inflation gauges has come into question after a bout of volatility triggered by wild swings in the oil price.

    The five-year eurozone breakeven forward, which President Mario Draghi often cites and which the ECB considers when it sets policy, is designed to measure what inflation is expected to average between 2020 and 2025.

    It should also strip out near-term fluctuations in, for example, commodity prices.

    However, in recent days it has moved almost in lock step with the most violent oil price swings in six years, complicating the picture of inflation expectations as far out as 2025.

    “This is not a reliable measure given the massive swings we have seen in correspondence with oil price moves,” said Marco Valli, chief eurozone economist at UniCredit.

    Draghi cited the rate in a speech at last year’s Jackson Hole gathering of central bankers to warn of declining inflation expectations.

    A sharp fall in the rate towards the end of 2014 was one of the main justifications for the ECB to launch its trillion euro bond-buying program in March.

    “If you pin yourself to only one thing, it might save you in certain periods, but it may also put you in a straitjacket,” said Dariush Mirfendereski, global head of inflation trading at HSBC.

    The breakeven forward rate is not the ECB’s only measure of inflation expectations but analysts say Draghi mentions it rather less often these days.

    He did not refer to it in his news conference last week even as he unveiled lower inflation forecasts and warned of a possible slip back into deflation.

    Ben May, lead eurozone economist at Oxford Economics, said the ECB was trying to distance itself from the measure, worried that investors are “becoming a little bit too obsessed with it.”

    (SD-Agencies)