Eurozone: Downside surprise in core inflation – Nordea Markets

Tuuli Koivu, Research Analyst at Nordea Markets, explains that Euro-area headline inflation jumped in March but core inflation disappointed and they continue to see the general inflation outlook fragile.

Key Quotes

“Euro-area headline inflation rose in March to 1.4% (1.1% in February). However, the rise in headline inflation was widely expected and to a large extent due to higher food price inflation.”

“At the same time, core inflation surprised to the downside, remaining at 1.0% y/y (consensus 1.1%). While the main reason was very weak development in non-energy industrial goods, also the early timing of Easter probably boosted inflation slightly less than we expected.”

“We also continue to expect the ECB to exit from its loose monetary policy very gradually.”

“We expect headline inflation to hover around 1.5% for the rest of 2018. The negative contribution from oil should be largest in annual terms in the beginning of 2019 and part of the weakness in expected oil price will be compensated by core inflation. We expect core inflation to accelerate in monthly terms but only gradually.”