Bert Colijn, Senior Economist at ING, notes that Eurozone’s headline inflation drops to 2%, but the real story is core inflation falls back to 1%.
Key Quotes
“The ECB will monitor this carefully in the coming months as core inflation needs to pick up for the conditional path of monetary tightening”
“Headline inflation remains elevated due to the energy price jump in the first half of the year, causing energy price growth to be 9.2% in August. This effect has started to slowly fade out of the inflation rate, meaning that inflation will slip below target in the months ahead.”
“Core inflation is therefore much more interesting to look at. For a sustained higher inflation rate, it needs to move up, and the much-anticipated acceleration has so far failed to happen.”
“While concerns about the ECB being behind the curve have already been voiced, today’s core inflation reading suggests the contrary.”
“The European Central Bank needs improved core inflation to stay on track for its conditional path towards the end of quantitative easing in December and a rate hike at the end of summer 2019.”
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