Bert Colijn, Senior Economist at ING, notes that the Eurozone’s headline inflation surged to 1.9% in April and core inflation increased to 1.2%, its highest level since June 2013.
Key Quotes
“A large part of this rebound can be attributed to the late Easter we had this year. Expect next month’s release to show weaker price growth though as underlying inflation remains weak.”
“Even though the detailed breakdown of inflation is not yet available, regional CPIs from Germany suggest a surge in holiday related inflation, like package holidays, which is related to the timing of Easter. Last month inflation dropped due to this effect and now we see the increase related to this. This clouds the more fundamental movement in inflation as a result of the decline in the base effects of energy on inflation. While energy prices still grew by 7.5% YoY this month, we expect that growth rate to come down significantly in May. That means that this month’s jump in price growth is likely to be followed by a decline, which also holds good for core inflation due to the package holiday effect.”
“While the Eurozone economy is showing some signs of acceleration, underlying price pressures are slow to respond, as is usually expected. Wage growth is still very weak for the moment and unlikely to increase significantly in the coming months. Selling price expectations among businesses are becoming stronger, but the impact of this usually comes with a delay. Core inflation is therefore likely to remain well below 1.5% for the foreseeable future, which means that Draghi had a point in keeping his cards close to his chest at the ECB governing council meeting yesterday. Although expectations of hints at tapering are rising, it seems likely that inflation rates will be disappointing at the time of the coming June council meeting.”
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