Home Eurozone core inflation showing no sign at all of any kind of upward trend – ABN AMRO
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Eurozone core inflation showing no sign at all of any kind of upward trend – ABN AMRO

“Eurozone core inflation is still very much following the sideways trend around the 1% mark that has been in place since early 2015. To put it another way, eurozone core inflation is showing no sign at all of any kind of upward trend,” argue ABN AMRO economists.

Key quotes

“We expect underlying inflationary pressures to remain subdued. There is still slack in the labour market and the slowdown in economic growth suggests that the downward trend in unemployment will flatten out. Although wage growth has accelerated moderately, companies seem to have absorbed this in their margins.”

“In addition, going forward we think companies will most likely repair margins by reducing the total wage bill (either by reducing wage growth or cutting headcount) than raising prices. This is more likely in an environment of soft demand as well as low and falling inflation expectations. Indeed, market inflation expectations as measured by the 5y5y inflation swap continue to decline and are now not too far off the record lows seen in July 2016.”

“Over and above that, a number of structural forces seems to be dampening inflationary pressures globally, including technological progress, globalisation and weaker employee bargaining power. We continue to take the view that the ECB’s inflation forecasts will prove too optimistic. At the same time, inflation expectations look to be dislodged. As a result, the odds that the ECB will need to adopt a more aggressive monetary stimulus continue to build.”

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