Danske Research Team
Danske Bank A/S
Euro inflation declined back to 0.3% y/y in November after 0.4% y/y in October. The latest decline in oil prices means that we currently expect inflation to decline to 0.1% y/y in December. That is very close to the deflation limit, and the pressure on the ECB continues to increase.
The decline was driven by lower energy price inflation, which was -2.5% y/y in November down from -2.0% y/y in October. The very low energy price inflation is due to the sharp drop in oil prices since September. However, it does not include the latest decline after OPEC announced that it would not cut production in an effort to curb the drop in the oil price, and we expect energy price inflation to decline further in December.
Food price inflation was unchanged at 0.5% y/y in November. The monthly rate has been positive since September and the higher consumer food prices reflect a lagged impact of the higher global food prices at the beginning of 2014. We expect food price inflation to decline a little in coming months, mainly due to a negative impact from base effects.
Core inflation was unchanged at 0.7% y/y in November. This reflects slightly lower service price inflation and a little higher inflation on non-energy industrial goods. The lower service price inflation is driven by a decline in the German figure, which was affected by lower inflation on package tours. Overall, core inflation is being kept low due to slack in the labour market, but is supported by the weaker euro as it gives higher imported inflation. Based on this, we expect core inflation will stay around current levels in coming months.
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