Eurozone core inflation ‘oddly weak’ say analysts

Price growth in the Eurozone remained flat and well below the ECB’s 2 per cent target, even after factoring in the latest rise in oil prices, according to the final inflation reading by Eurostat.

Consumer price inflation in the Eurozone has stalled at 1.2 per cent in April, down from 1.3 per cent in March 2018. Core inflation, which strips out volatile components like food and energy and is seen as a more reliable gauge of inflationary pressures, fell by 0.3 percentage points to 0.7 per cent, as expected.

The breakdown shows that prices were pulled down by services inflation dipping by 0.5pp to 1.0 per cent, something which is common around Easter time. However, according to Claus Vistesen at Pantheon Macroeconomics, the “trend in non-energy goods inflation is oddly weak”.

“The main downside surprise in the core data was sluggish non-energy goods inflation, which rebounded only tepidly to 0.3 per cent from 0.2 per cent in March”, he says, adding that the sluggish trend” is now a key downside risk for the aggregate core inflation data”.

But Mr Vistesen said he was hopeful that headline inflation will increase sharply in coming months thanks to higher oil prices. Falling unemployment should also run parallel with a gradual increase in core inflation.

“We still think the ECB is on track to end QE later this year”, Mr Vistesen said.

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Eurozone core inflation ‘oddly weak’ say analysts

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