Eurozone inflation slowly grinds higher - ING

Peter Vanden Houte, Chief Economist at ING, notes that the Eurozone headline inflation rose to 0.6% in November, while core inflation stabilized at 0.8%.

Key Quotes

“The trend is now upwards, but it might take until 2019 before the ECB’s target is actually reached.”

“The flash estimate of Eurozone HICP inflation came out at 0.6% in November, a small increase after the 0.5% inflation rate observed in October. This was in line with consensus. The downward pressure from low oil prices is slowly petering out and from December onwards energy prices are likely to add positively to the headline inflation rate. Core inflation (ex energy, food, alcohol & tobacco) remained stable at 0.8%.”

“After the increase of price expectations in yesterday’s Economic Sentiment Indicators report, we now get the feeling that inflation is bottoming out. That said, we’re still years away from a return to normal. Based on a Phillips curve estimate we expect core inflation to rise further, but it might take until 2019 before the ECB’s close but below 2% is target is actually reached.”

“In that regard we stand by our call that the ECB is going to announce a 3 to 6 months lengthening of its QE program in December. At the same time, with growth holding up and inflation now slowly grinding higher, the June 2017 meeting could see a tapering announcement.”