Danske Research Team
Danske Bank A/S
We expect HICP inflation (due for release on Friday) to increase to 0.6% y/y in October from 0.3% y/y in September (consensus 0.4% y/y) despite the decline in the oil price during the month. The expected increase also reflects that core inflation is expected to rise 0.2pp to 1.0% y/y in September.
However, the unrounded figure for headline inflation is only 0.56% and there is a downside risk to our forecast, especially from the decline in the oil price. On Thursday, German inflation is due for release and it will provide some information about the downside risk to our forecast (HICP released in the afternoon is relevant for euro inflation).
For the rest of 2014 we expect euro headline inflation of 0.6% y/y, resulting in an average rate of 0.5% in 2014. For 2015 we forecast an increase in inflation to 0.8% before rising to 1.2% in 2016. These forecasts are below the ECB’s inflation projections and in our view the ECB will have to revise its forecasts lower again (new projections are released at the meeting in December).
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