Tag Archives: Inflation

Inflation trends in the Euro area – Oct 2018

This post provides an inflation update for the Eurozone with numbers through September 2018. With various adverse scenarios (Brexit, Italian banks, trade war) looming at the horizon, risks to the economic outlook are arguably tilted to the downside. Monetary stimulus provided by the ECB (negative rates, …) is still at unprecedented levels and it is unclear (to me) whether the ECB has additional measures available in case any of the mentioned (or other) scenarios leads to an economic downturn. Policy normalization in the near future appears important to be able to suport the European economy in an adverse event. I therefore look at whether policy normalization can be justified from an inflation perspective.

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Eurozone inflation in September exceeded 2 percent, slightly higher than three months ago, and with somwhat higher price increases in the two biggest economies (France, Germany). While this might seem like policy normalization could be at the horizon, the headline inflation shown above is only one of several inflation measures typically considered. In particular, core inflation that excludes energy and food prices is still stubbornly low (see next graph), still close to 1 percent, and has even decreased slightly relative to three months ago.

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Price levels hence do not provide a clear message towards ending extraordinary monetary stimulus any time soon. I will leave the discussion of whether such normalization might be justified from a financial stability perspective for another time.

European inflation trends in June

Eurostat released updated inflation numbers for Euro area countries last week. While data for some data is available through July, for most countries data are available through June 2018. Let us first look at annualized inflation based on the harmonized consumer price index in June 2018.

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Overall price growth has been close to 2 percent in June but has exceeded 2 percent in a number of large economies, including France, Germany and Spain. At the surface, if the trend continues, the ECB might get under pressure to raise rates before summer 2019. Core inflation (price growth excluding energy and food), however, is still low across most economies. Looks like we'll have low nominal rates for a while.

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