by With the ECB still concerned about weak dynamics in core prices and wages, we believe a 6-month extension of QE will be announced in December, with asset purchases of EUR80 bn per month.Euro area flash HICP inflation rose from 0.4% year on year (y-o-y) in September to 0.5% in October, while core inflation remained stable at 0.8%. Both figures were in line with market expectations. However, the details behind the core inflation figure were slightly weaker than expected.Euro area inflation is likely to move sharply higher in the next few months as energy-base effects kick in properly, with headline HICP peaking at close to 1.50% y-o-y by the end of Q1 2017, according to our forecasts. But we still expect headline inflation to stabilise further ahead as core inflation is unlikely to rise significantly above 1% next year. We have not changed our forecasts as we expect euro area HICP inflation to average 0.2% in 2016 and 1.3% in 2017, with risks modestly tilted to the upside in the short term, but to the downside over the medium term.The ECB is unlikely to make any large change to its medium-term assessment of price stability at its December policy meeting, in our view. Recent headline inflation would seem to be in line with the ECB’s staff projections since Q2 and we believe the upcoming staff projection for HICP inflation is likely to be set at around 1.
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Frederik Ducrozet considers the following as important: ECB staff forecasts, euro area headline inflation, European core inflation, European inflation, Macroview
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With the ECB still concerned about weak dynamics in core prices and wages, we believe a 6-month extension of QE will be announced in December, with asset purchases of EUR80 bn per month.
Euro area flash HICP inflation rose from 0.4% year on year (y-o-y) in September to 0.5% in October, while core inflation remained stable at 0.8%. Both figures were in line with market expectations. However, the details behind the core inflation figure were slightly weaker than expected.
Euro area inflation is likely to move sharply higher in the next few months as energy-base effects kick in properly, with headline HICP peaking at close to 1.50% y-o-y by the end of Q1 2017, according to our forecasts. But we still expect headline inflation to stabilise further ahead as core inflation is unlikely to rise significantly above 1% next year. We have not changed our forecasts as we expect euro area HICP inflation to average 0.2% in 2016 and 1.3% in 2017, with risks modestly tilted to the upside in the short term, but to the downside over the medium term.
The ECB is unlikely to make any large change to its medium-term assessment of price stability at its December policy meeting, in our view. Recent headline inflation would seem to be in line with the ECB’s staff projections since Q2 and we believe the upcoming staff projection for HICP inflation is likely to be set at around 1.8% for 2019, not far from the ECB target.
However, beneath the surface, concerns have grown over the lack of momentum in core prices and wages. The ECB is expecting stronger services prices to more than offset weaker core goods prices in 2017, but the staff projections still look over-optimistic, in our view. Notwithstanding stronger economic data of late, we think that those concerns will dominate debates within the ECB’s Governing Council, resulting in a 6-month QE extension to be announced at its December meeting, at the same EUR80 bn monthly pace, along with technical changes to ensure the smooth implementation of the asset purchase programme.