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Eurozone: Deflation back again, one more time – ING

FXStreet (Delhi) – Teunis Brosens, Research Analyst at ING, notes that after five months of readings slightly above zero, Eurozone headline inflation dipped into negative territory again in September as today’s Eurostat flash estimate shows Eurozone inflation at -0.1%YoY, down from +0.1% in August.

Key Quotes

“The decline is fully attributable to a fall in energy prices: September inflation excluding energy is unchanged at 1.0%.”

“Outside of energy prices, there is little action in September’s inflation numbers. Core inflation held steady at 0.9%.”

“ECB-president Draghi will have to tolerate inflation around zero for just a few more months, as low energy prices continue to drag down headline inflation. From December onwards however, energy will become a less important factor for headline inflation due to ‘base effects’ (consumer energy prices started their steep decent last December).”

“That should cause headline inflation to quickly recover to between 0.5% and 1.0%YoY, where it will likely remain for some time. This may diminish the pressure on the ECB to expand its QE programme. But with continuing high unemployment (unchanged at 11.0% in August) guaranteeing little nominal wage pressure, core inflation looks set to remain well below the ECB’s comfort zone of just below 2% in the foreseeable future. Talk of QE expansion and extension will therefore remain with us for some time.”

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