Euro area: Energy prices pulling inflation down – Nordea

Analysts at Nordea Markets offered a quick review of Tuesday’s release of the flash version of the Eurozone CPI, which is estimated to have edged down to 1.2% YoY rate in February from 1.4% previous.

Key quotes:

“Last week, German inflation came in at 1.7% y/y, just above consensus (1.6% y/y) and up from January’s 1.6% y/y. It was mainly driven by services and food prices. French inflation edged down slightly, to 1.6% y/y from 1.7% y/y in January. Higher prices for manufactured goods and services were offset by lower energy prices. Italian inflation also slowed due to lower energy prices, to 0.4% y/y.”

“Looking ahead, the recent drop in oil prices sets headline inflation to move down further in the coming months. We expect core inflation to pick up slowly. Inflation is however not the most important factor for the ECB right now. As Lagarde’s statement yesterday stressed, the ECB is closely monitoring developments concerning the coronavirus outbreak and activity indicators revealing its impact to decide on the policy course in the near term. We expect an emergency response from the ECB in March.”