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Anders Svendsen, Research Analyst at Nordea Markets, notes that the final Euro-area HICP numbers confirmed the flash estimates for August core CPI of 0.2% m/m and 1.0% y/y.

Key Quotes

“Upward momentum in underlying inflation is fading. Super-core inflation was 1.1% y/y in August (Nordea measure) when excluding package holidays, down from 1.2% y/y in July, and in roughly the same in % 3m/3m.”

“Country details showed that Germany is pulling lower due mostly to falling education prices, while France is still seeing stronger momentum even if super-core inflation remains low in % y/y terms.”

Wage increases accelerating

We expect that core inflation will accelerate gradually in 2019-2020 (our forecast). The main contributor to the future inflation will be higher labour costs.

In the second quarter or 2018, labour compensation was up 2.3% y/y – the fastest pace since 2008. Although a part of the acceleration is due to temporary factors such as higher public sector wages in Italy, it is noteworthy that wage increases are becoming larger in most Euro-area countries.

Thus, it seems that the tightening of labour market is now taking wages higher and while a part of the increases can be compensated by productivity increases, we expect them to feed also core inflation.”

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