ECB shifting towards a more holistic view on inflation and economy – Danske Bank

The ECB is increasingly shifting focus towards a more holistic view of the euro area economy and inflation, with a strong belief that the closing output gap in light of ongoing expansion and continued employment gains will eventually push underlying inflation pressures higher, according to Aila Mihr, Analyst at Danske Bank.

Key Quotes

“In line with this thinking, the so-called ‘super core’ inflation measure has increasingly featured in recent speeches by ECB members. Super core consists of a sub-index of all HICP items that have been closely correlated with the output gap in the past and could hence provide important signals about turning points in inflation.”

“The ECB does not publish the series but using the ECB’s methodology we have tried to replicate it (see also Euro Area Research – ECB inflation gap persists in 2019, 4 December).”

“Both our and the ECB’s super core inflation measures indicate an upward trend since 2017.”

“Should this increasing trend continue, it would support the ECB’s argumentation of a pickup in underlying inflation pressures, providing it with a good ‘excuse’to end the QE programme in 2018.”