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Danske Bank analysts suggest that with clouds over the Eurozone’s growth outlook clearing a little, unit labour costs rising and firms’ margins being squeezed, they still see strong arguments for core inflation to reach rates of 1.3-1.4% by year-end.

Key Quotes

“We emphasise that it will be a gradual uptrend, as the current economic environment remains fragile.”

“Markets generally remain very sceptical about any core inflation uptick in the current economic environment, in line with the very subdued ECB pricing. In our view, current inflation market pricing remains too low and we see scope for repricing in inflation-related products, especially in H2 19.”

“We doubt that the projected gradual rise in core inflation is enough to convince the ECB to bring rate hikes back to the table for 2020.”