CME to launch European HICP inflation futures

The Chicago Mercantile Exchange is set to launch a European inflation futures contract based on the eurozone harmonised index of consumer prices (HICP), excluding tobacco, an annual inflation measure published by Eurostat, on September 19. The contracts will trade on the CME Globex trading platform between 8am and 4pm UK time.

The CME may have responded to criticism of its US consumer price index futures contract, which has failed to get off the ground since its launch in February 2004. The European contract will be based on a notional value of €1 million for 12 months and will be quoted as 100 minus the annual inflation rate in the 12-month period preceding the contract month. Inflation traders have criticised the US contract because the quarterly CPI on which it is based introduced too much seasonal volatility, which pushed dealers away from market-making.

“The contract’s monthly expiration will generate interest from inflation swap desks at major banks as well as asset managers and active traders like hedge funds looking for trading opportunities,” said Robin Ross, managing director of CME interest rate products. “An active short-term inflation hedge will allow dealers to free-up their capital to create more structured products of medium- and longer-term tenures, thus contributing to the further growth of the European inflation derivatives market.”

Whereas Barclays Capital was the only market-maker for the US contract, the CME anticipates it will have several market-makers when the HICP futures are launched. The exchange is offering a six-month fee waiver for Globex and clearing fees to all market participants at launch.