Euro area: Rebound seems likely in inflation – Lloyds Bank

Analysts at Lloyds Bank explains that a rebound seems likely in the Euro area inflation as the Easter timing effect unwinds – affecting, the durability of the euro area inflation upturn beyond 2017 remains contingent on stronger readings for ‘core’ inflation.

Key Quotes

 “Following broad stability in January and February, March saw a sharp drop in Brent crude oil prices, falling below $51 per barrel. The turn lower in sentiment – reflecting signs that US crude oil stocks have been accumulating more quickly than typical seasonal builds – largely unwound by 10 April, with prices recovering to around $56 per barrel. Such price levels are up relative to those prevailing in early 2016 and will therefore continue to provide some support to inflation dynamics globally. However, the contribution of energy prices will decline as the resulting base effects taper off after 2017 Q1.”

“The energy impact on euro area inflation trends was already visible in March, additionally reinforced by an Easter timing effect.  Headline inflation dropped back to 1.5% y/y on the March ‘flash’ estimate, the slowest in three months, with energy contributing to the drop. Underlying ‘core’ inflation – outside of energy and food prices – also fell, with the 0.7% y/y rate the weakest since April 2016. Although a rebound seems likely as the Easter timing effect unwinds – affecting, for example, the prices of package holidays – the durability of the euro area inflation upturn beyond 2017 remains contingent on stronger readings for ‘core’ inflation. These have hitherto been slow to react to ongoing ECB stimulus.”