Eurozone week ahead: Inflation and Italy - Danske Bank

Analysts at Danske Bank, expect HICP inflation to slow further to 2.01% y/y driven by lower contribution from both food and energy prices in the Eurozone. Also of attention next week are the Italian projections with special attention to the budget deficit.

Key Quotes: 

“In the euro area, we will receive HICP figures for September on Friday. In August, headline inflation fell to 2.05% y/y and we expect the September print to slow further to 2.01% y/y, still driven by lower contribution from both food and energy prices. Although we saw negotiated wages pick up in Q2, core inflation disappointed at 0.96% y/y in August from 1.07% y/y in July and we expect September’s figures to linger at 0.97% y/y, as the feed through from higher wages materialises only gradually.”

“On Thursday, Italy will publish growth, dept and deficit projections for 2019 and it will be very interesting to see if Finance Minister Tria has succeeded in keeping the budget deficit in line with EU regulations or if populist leaders Matteo Salvini and Five Star Movement leader Di Maio achieved extensive spending on their flagship proposals. We expect the 2019 budget to include some kind of tax reforms and citizen income, but policies will likely be phased in only gradually or implemented by tweaking some already existing schemes in order to avoid the deficit breaching EU rules. Therefore we expect the 2019 to land somewhere between 2.0-2.4%.”