Eurozone Inflation: Still no convincing signs of a sustained uptrend – TDS

The inflation language at the April meeting should remain entirely unchanged from in March, according to analysts at TDS.

Key Quotes

“While we're sceptical that underlying inflation will pick up as much over the next two years as the ECB is expecting, the ECB still believes that "underlying inflation is expected to rise gradually over the medium term, supported by our monetary policy measures, the continuing economic expansion, the corresponding absorption of economic slack and rising wage growth."

“Core inflation disappointed yet again in March, with the rate unchanged at 1.0% y/y, but we don't think that's going to be enough to change the ECB's view. Their swathe of underlying inflation measures continues to move sideways. At the moment it's still a split picture within the Governing Council, with the ECB minutes from the March meeting showing that some hawkish members believe that "the Governing Council’s criteria for a sustained adjustment in the path of inflation could be assessed as close to being satisfied over a mediumterm horizon." But the majority is still on side with Draghi and Praet's patience and prudence approach, as "the broadly agreed conclusion was that the evidence for a sustained rise in inflation towards levels consistent with the Governing Council’s inflation aim was still not sufficient."

“The ECB may make a bit more progress in resolving this debate at the June meeting when new staff forecasts are presented, and at that time in our view core CPI is likely to slipped back down to 0.9% y/y, making it more clear that the majority view is probably the correct one. But for now the debate will remain an open one, with the ECB unlikely to see any need to change the inflation language in either direction.”