Euro area annual inflation slows in April, ECB likely to maintain easing bias

Eurostat has released the estimate of euro area’s inflation rate for April. According to the report, the currency bloc’s headline inflation rate decelerated to -0.2% in April 2016 from March’s 0.0%. Meanwhile, the core inflation rate, stripping the effects of alcohol, food, tobacco and energy, decelerated to 0.82% y/y from March’s 1%. This is mainly because the Easter effect waned, noted Nordea Bank.

According to Eurostat’s press release, “services is expected to have the highest annual rate in April (1.0%, compared with 1.4% in March), followed by food, alcohol & tobacco (0.8%, stable compared with March), non-energy industrial goods, (0.5%, stable compared with March) and energy (-8.6%, compared with -8.7% in March)”.

The estimated low numbers are likely to make the European Central Bank keep its easing bias, in spite of the economy recording a stronger growth in Q1. The headline inflation rate is expected to remain around zero until June and then accelerate to about 1% y/y by late 2016 on base effects if EUR/USD and Brent prices are assumed at current levels, according to Nordea Bank.

The ECB has enough time to further ease monetary policy. Hence it is likely that the central bank will extend the asset buying program beyond 2017 and also lower the deposit rate again, said Nordea Bank.