Eurozone: ECB to see through April CPI data and focus on underlying inflation pressures - Danske Bank

According to analysts from Danske Bank, Eurozone inflation in April decline as expected due to the timing of Easter. They expect a rebound in core inflation to 1.0% in May. 

Key Quotes: 

“Euro area headline inflation fell back to 1.23% y/y in April, driven by a dip in core inflation to 0.72% (compared to 1.03% in March), while energy and food price inflation both accelerated to 2.55% and 2.45%, respectively. A decline in core inflation was widely expected due to the differing timing of Easter.”

“We think the ECB will see through this temporary inflation dip and focus on the trend in the underlying inflation pressures and whether core inflation rebounds above 1.0% in May. This will also be crucial for whether the next change in the forward guidance will come in June (as markets expect) or July (as we expect).”

“But despite the pick-up in wage growth, core inflation has shown only a marginal upward trend since the beginning of the year.”

“A temporary increase in headline inflation in the coming months is likely because of energy price inflation, but we expect the underlying price pressure to stay subdued going forward. Although we look for a rebound in core inflation to 1.0% in May, our view remains that core inflation will rise only very gradually during 2018, averaging 1.1% before accelerating to 1.4% in 2019 on the back of rising wage growth and service price inflation.”

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