Eurozone: Core inflation drops well below 1% - ING

Bert Colijn, Senior Economist at ING, notes that Eurozone’s core inflation has fallen to 0.7% in April, while headline has fallen back to 1.2% and as a result, anything but an extension to the QE programme would be a surprise at this point

Key Quotes

“The question is almost what will come first, an agreement on the next EU budget or a meaningful rise in Eurozone inflation. April again caused disappointment as core inflation dropped well below 1% and further than analysts had expected. The jump in services inflation in March was because of an earlier Easter than last year. That effect was reversed this month with a drop of 1.5% to 1%.”

“The surprising March drop in goods inflation from 0.6 to 0.2% was not reversed as it recovered to just 0.3% this month. Despite steady unemployment declines over the past year - the March data showed a drop of 1.4 million in unemployment and a decline of 0.9 percentage points to 8.5% in the rate - inflation is failing to move.”

“Still, additional slack is significant and people returning to the labour market as employment expectations improve could dampen a possible wage growth recovery.”

“With just the May inflation data to go before the June meeting and core inflation well below 1%, anything but an extension to the QE programme would be a surprise at this point.”