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Euro area cyclical inflation is on the rise

Summary:
Rising core prices, along with wage growth, should help the ECB along the road to policy normalisation.Euro area cyclical inflation has been slowly rising over the past few months, from low levels. Several measures of underlying inflation have broken out of the tight range around which they have fluctuated for the past three years.The ECB’s ‘super core’ inflation rate rose to a three-year high of 1.04% in August, with other indicators showing a stronger upward momentum. Today’s stronger-than-expected euro area PMI indices confirmed that pipeline price pressures were rising.Next week’s release of euro area ‘flash’ HICP for September will be more important than usual ahead of the 26 October ECB meeting. Any core inflation print at, or above the August level of 1.2%, would be strong enough

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Rising core prices, along with wage growth, should help the ECB along the road to policy normalisation.

Euro area cyclical inflation is on the rise

Euro area cyclical inflation has been slowly rising over the past few months, from low levels. Several measures of underlying inflation have broken out of the tight range around which they have fluctuated for the past three years.

The ECB’s ‘super core’ inflation rate rose to a three-year high of 1.04% in August, with other indicators showing a stronger upward momentum. Today’s stronger-than-expected euro area PMI indices confirmed that pipeline price pressures were rising.

Next week’s release of euro area ‘flash’ HICP for September will be more important than usual ahead of the 26 October ECB meeting. Any core inflation print at, or above the August level of 1.2%, would be strong enough for the ECB to move ahead with policy normalisation, in our view.

Frederik Ducrozet
Mr. Frederik Ducrozet is a Senior Econoist at Banque Pictet & Cie SA, Research Division. Prior to this, he served as Senior Eurozone Economist at Credit Agricole Corporate and Investment Bank, Research Division from June 2006 till September 2015. He joined Crédit Agricole SA in 2005. Mr. Ducrozet contributed to the various publications of the research department, with a special focus on macroeconomic developments in Eurozone countries, including on the outlook for fiscal policy and the ECB’s monetary policy. Do not hesitate to contact Pictet for an investment proposal. Please contact Zurich Office, the Geneva Office or one of 26 other offices world-wide.

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