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Peter Vanden Houte, Chief Economist at ING, notes that the flash estimate for Eurozone HICP inflation came out at 2.1% in September, while the core inflation (excluding energy, food, alcohol and tobacco) surprised on the downside, falling back to 0.9%.

Key Quotes

“The 2% headline inflation remains pretty much an oil story. Energy prices increased 9.5% year on year on the back of higher oil prices and looking at the oil price dynamics over the past 12 months to assess the base effects; it’s very likely that energy will continue to keep headline inflation above core inflation for some time. If oil prices don’t ease, headline inflation might even remain above 2% until the second quarter of 2019.”

“However, the European Central Bank looks through these temporary effects and pays more attention to the underlying price dynamics.”

“We still believe the ECB will try to get rid of the negative interest rates by the end of 2019. But with the current core inflation figures, it is unlikely that the ECB is going to speed up its exit strategy.”