Eurozone: Significant increase in December inflation numbers - Natixis
Jesus Castillo, Research Analyst at Natixis, notes that the Eurozone inflation rate reached 1.1% in December from 0.6% in the previous month while the core inflation (excluding energy, food, alcohol and tobacco prices) improved to 0.9%.
Key Quotes
“The acceleration of inflation over the past month has been driven mainly by energy prices. The headline inflation closed the year at 0.2% in average in 2016 and core inflation at 0.9%.”
“The consumer prices in the Eurozone increased in December by 0.5% M/M resulting in an inflation rate of 1.1% according to the preliminary estimate. The figure released is slightly above our forecast (1%) and 0.2 pp higher than the consensus estimate (0.9%). During the whole year 2016 consumer prices increased by 0.2% YoY (from 0% in 2015) that was far from the ECB price stability target. The core inflation has reached 0.9% as well as in December than in average in 2016. We believe that it should stand close to this level all over this year since there are few inflationary pressures.”
“As we were expecting, inflation rate has started to increase significantly in December and should continue to rise over the first quarter. Indeed, as well in December 2015 as in January 2016, oil prices registered huge decreases (-15% MoM in euro terms and -18% respectively). From now on they are raising rapidly (+19.6% MoM in euro terms in December) and leading to a marked pickup in consumer prices due to base effects. Thus inflation might reach a peak around 2% in April before stabilizing and gradually decelerating thereafter.”
“From the ECB side, the current acceleration of consumer prices is with no doubt a positive development. However, the 2% ECB target is not guaranteed in the middle term with no other fuel than energy prices bases effects. Thus maintaining a very accommodative monetary stance is totally justified. Indeed the risk remains on the effectiveness of the monetary stimulus to bring back inflation durably to its target.”