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EMU CommentCore inflation surprisingly weak

  1. Headline inflation rose as expected
  2. Core inflation surprisingly fell
  3. Did not lend support to Draghi's comments
Headline inflation rose as expected
Flash consumer price inflation in the eurozone rose in line with expectations, to 2.1 percent y-o-y, in September, from 2.0 percent y-o-y in August. Thus, inflation has remained at, or just over, 2% for four months in a row. But base effects stemming from energy prices will probably pull headline inflation down toward the end of the year.
Core inflation surprisingly fell
It was increases in energy and food in particular that pulled up, while core inflation unexpectedly fell to 0.9 percent y-o-y in September, from 1.0 percent previously, despite Eurostat's data showing unchanged annual inflation for service items and non-energy industrial goods. The decline was therefore probably a close call. With core inflation back at its lowest in three months, there is not much to indicate that a faster climb in underlying inflation is about to materialise. We still see underlying inflation increasing gradually over the coming year, as the effect of increased wage growth and the spillover from already-higher headline inflation will become more pronounced.
Did not lend support to Draghi's comments
Today’s numbers do not do much to support expectations of increasing inflation that gained some tailwind after Draghi's comments about a “vigorous pick-up in underlying inflation” a few days ago. But the context of those comments was that Draghi saw a stable profile for overall inflation until 2020, with a slowing contribution from the non-core components and a relatively vigorous pick-up in underlying inflation. So he was probably not as upbeat as some might have read him. On the other hand, we do not expect the inflation numbers to challenge the ECB's normalisation plans, with asset purchases still being scaled down next month.

Source: Macrobond


Rasmus Gudum-Sessingø

Senior Economist


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