Bert Colijn, senior economist at ING, notes that Eurozone’s inflation has dropped to 1.6%, supported by the lower oil prices.
Key Quotes
“Core inflation remains at 1% as higher wages haven’t translated into higher prices just yet.”
“Even though wage growth has undoubtedly started to improve in the Eurozone and is now back at growth rates seen during the 2000s, this is not yet translating into stronger core inflation. With other input prices weakening and uncertainty about the Eurozone economy increasing, businesses are not yet pricing through the higher wages.”
“As the labour market continues to tighten, businesses are tightening their margins for the moment, but the question is for how long are they prepared to do this. If the economic situation continues to worsen, it could be that higher wages don’t translate into significantly higher core inflation for the months ahead, although some upward movement can be expected.”
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