Eurozone: Lower than expected inflation numbers – Nordea Markets

Tuuli Koivu, Reseach Analyst at Nordea Markets, explains that the Euro-area inflation brought a negative surprise even after the very weak country-level data as core inflation at 0.7% indicates that price pressures in the area remain sluggish and the ECB will not hurry in its exit.

Key Quotes

“Euro-area inflation surprised downside in April. Especially core inflation at 0.7% fell short of expectations. Even worse, expectations were already taken lower by the country-level data on service prices that was published in the previous days and indicated that the Easter effect failed to materialise in 2018 and price developments in general continues to be fragile. Headline inflation declined to 1.2%.”

“Although the monthly volatility in the Euro-area inflation is sometimes considerable and seasonal adjustments are complicated by e.g. the varying timing of Easter, the very weak numbers indicate that price pressures in the Euro-area remain weak.”

“Thus, there is a significant downside risk for the ECB staff projection of 1.1% for core inflation in 2018. The low numbers in March-April raise concerns that the momentum in inflation that was building up in the beginning of this year is lost again.”