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EMU CommentInflation higher than expected; but mind the Easter effect

  1. Core inflation back up at a six-month high
  2. Another source of comfort for the ECB
Core inflation back up at a six-month high
Eurozone HICP inflation was higher than expected in April, where it jumped to 1.7 percent y-o-y from previously 1.4% y-o-y. The higher-than-expected outcome was probably not a big surprise as national figures already hinted at the outcome earlier this week. The increase in the headline inflation figure was bolstered by energy but especially the core components, as service inflation jumped to 1.9% y-o-y from previously 1.1 percent y-o-y. Hence, core inflation jumped to 1.2 percent y-o-y in April (previously 0.8 percent), which is the highest inflation in six months. However, the primary driver was probably the Easter effect, particularly on package tours which lowered the March observation more than expected. Taking account of the redistribution effect between the two months, core HICP inflation thus averaged 1.0 percent, which is still in line with the level seen over the past year or so.
Another source of comfort for the ECB
This said, we do still expect core inflation to trend up over the coming several months, as suggested by a stronger credit impulse (graph), the closed unemployment gap and upward trending wage growth, albeit the move probably will be gradual. As for the ECB, the numbers (such as the Q1 growth numbers earlier this week) contrast a bit with the ECB's message at the April policy meeting, that inflation is likely to decline over the coming months. Hence, another reason for the ECB to lower its expressed alertness.

Source: Macrobond


Rasmus Gudum-Sessingø

Senior Economist


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