Eurozone: Temporary Easter spike in inflation – Nordea Markets

Anders Svendsen, analyst at Nordea Markets, points out that the Euro area core inflation surprised the market to the upside with 1.2% in April (consensus: 1.0%) in line with their expectations, driven by the late timing of Easter in 2019 compared to last year.

Key Quotes

“The most seasonal constituents of core inflation, such as package holidays, picked up substantially during the days before and around Easter.”

“We do not see much change to the underlying trend in core inflation. Services price inflation picked up temporarily, especially driven by the German subcomponent, which in turn was driven by the highly volatile package holiday prices (April +11.2% y/y).”

“The risks to the downside persist upholding the pressure on the ECB to provide further easing once inflation falls back behind staff projections again in May and going forward.”

“Headline HICP inflation came in at 1.7% as we expected (consensus: 1.6%), driven by an uptick in energy price inflation to 5.4% (March: 5.3%) which was driven by increased oil prices and a strong dollar.”

“Markets currently anticipate a reverse contribution from energy prices throughout the second half of 2019, which will naturally be a drag to headline inflation.”