Jacqui Douglas, chief European macro strategist at TD Securities, notes that the December estimate of Eurozone inflation showed headline ticking up to 1.3% YoY on higher energy prices, and core CPI holding steady at 1.3% YoY.
Key Quotes
“Recent trends in core CPI have been unusually strong, with the 3m annualised trend jumping to 1.7%. Core goods inflation has picked up a touch, but services CPI, outside of one-off jumps in travel costs or methodology changes, is posting its strongest gains in about 7 years. Meanwhile, the ECB’s alternate underlying inflation measures (which we only have up until November) have been fairly flat for the last half year.”
“We believe it’s too early to call this a change in trend. But it will leave the ECB feeling more comfortable about inflation prospects and the current amount of stimulus in place.”
“However, with the ECB forecasting HICP of only 1.6% in 2022, we think it’s far too early to start thinking about rate hikes or even the end of QE. That being said, if M/M core CPI trends don’t show any signs of unwind in the next 1-2 months, that would make for a more convincing upward trend. This would likely see the ECB remain on hold in March, rather than our forecast for a 10bps rate cut.”
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