Eurozone: Core inflation remains on a weak footing – Danske Bank

Euro area’s headline inflation remains above the 2% target, but analysts at Danske Bank expect the ECB to see through this temporary rise on the back of the volatile energy component and instead focus on the trend of the underlying inflation pressures.

Key Quotes

“Although there are rays of hope for the euro area inflation outlook, not least because of accelerating wage growth, core inflation continued to surprise on the downside in recent months and fell back to 0.9% in September. That said, it is encouraging that super core inflation held up and even increased marginally by 0.01pp to 1.22%.”

“The ECB’s recent communication has turned increasingly hawkish on the wage growth and inflation outlook (Draghi talked about “a relatively vigorous pick-up in underlying inflation” four weeks ago, see next slide). However, so far inflation data is not supporting this rhetorical shift, as underlying inflation pressures have yet to show a convincing upward trend.”