Eurozone: Pace of core inflation rise is still uncertain - Natixis

In view of the analysts at Natixis, core inflation remains low for Eurozone and it is still not known that how long it will take for core inflation in the euro zone to also rise towards 2%.

Key Quotes

“As a result of the rise in the oil price, headline inflation in the euro zone rose to 2% and has now returned to 1.5%. But the ECB can use the fact that core inflation remains low as an argument for extending quantitative easing. It is therefore useful to determine how long it will take for core inflation in the euro zone to also rise towards 2%. This depends on:

  • The pace of the fall in unemployment, as growth in the euro zone is higher than potential growth;
  • The extent to which wages in the euro zone react to the unemployment rate;
  • The inertia of core inflation in the euro zone to unit labour costs.”

“All in all, core inflation of the euro zone could return to 2% in only four years if these parameters do not change and if there are no further shocks.”