Data today confirm that the euro area has exited deflation

Euro-area HICP inflation increased to 0.3% y/y in May from 0.0% y/y in April. The biggest surprise was an increase in core inflation to 0.9% y/y in May from 0.6% y/y in April (consensus 0.7% y/y).

According to Danske Bank - "The data today confirm that the euro area has exited deflation. It seems likely that headline inflation will increase above 1.5% y/y in January 2016"

The surprisingly higher core inflation followed as both service price inflation increased (around 60% of core inflation) and as inflation in non-energy industrial goods was higher (around 40% of core inflation). 

"We look for core inflation around 1.0% y/y at the end of the year but we expect it to decline a bit again in May." says Danske Bank