Eurozone: Updated inflation forecast supports gradual ECB exit – Nordea Markets

Tuuli Koivu, Research Analyst at Nordea Markets, suggests that they have lowered their Euro-area inflation profile a tad, supporting their dovish ECB view as the final March core inflation print confirmed the flash, but momentum in super core inflation continues to rise.

Key Quotes

“We take our Euro-area core inflation forecast down by 0.1 %-points to 1.1% for 2018 and to 1.4% in 2019. In the same vein, the headline inflation numbers decline to 1.3% both for 2018 and 2019. Flat headline profile is partly due to the declining futures curve which implies that the contribution from oil will turn negative in 2019.”

“The revisions to the forecasts are small as most of the recent data has supported our earlier views on the Euro-area inflation. The very low monthly observations in the second half of 2017 turned out to be temporary but at the same time, monthly changes in core are yet to gain pace in order to take annual inflation numbers substantially closer to the ECB target. The base effects from last spring and summer are likely to keep annual numbers at around current levels until autumn but by looking at the monthly numbers, the picture should get more positive step by step.”

“Final March print

• The final March print did not spring any major surprises. Inflation excluding food, energy, alcohol and tobacco was confirmed at 1.0%, while headline inflation was revised down a tad to 1.3%.
• The underlying momentum in super core inflation continued to pick up, while the downside surprise to the flash numbers came from non-energy industrial goods and more precisely the details single out one component.
• Momentum in super core inflation is even higher when excluding the notoriously volatile package holiday prices that somehow failed to rise ahead of the early Easter.
• Still, even without package holidays our super core inflation measure stands at 1.2%, hardly warranting any lifted eyebrows at the ECB.”