Danske Bank: Euro Inflation to increase sharply this year

Quotes from Danske Bank

• Euro inflation surprised on the upside in February and consequently we revise our forecast for 2015 up and into positive territory.
• The upward revision is driven by higher energy and food price inflation. Historically, commodity prices have explained most of the variation in inflation.
• At the end of 2015 we expect inflation to increase sharply as there is a positive base effect from the decline in the oil price in 2014. Although headline inflation is set to increase we forecast core inflation will stay below 1.0% during 2015 and we look for a new historical low of 0.5% in April.
• The ECB's QE programme reduces headwind to inflation through a weaker currency, but changes in commodity prices have a larger impact on inflation.
  
  
• We still expect the euro area to remain in deflation during H1, but at the end of the year it should rise sharply as there is a positive base effect from the large drop in the oil price at end-2014.