Euro area final December inflation unrevised from flash estimate, likely to reach 1.5 pct in 2018

The final euro area inflation data for December was unrevised at 1.4 percent year-on-year from the flash estimate, just below the average for the year. But the rounding concealed a near-miss – to three decimal places, a downward revision to 1.3 percent year-on-year was averted by just 0.003 points. In the meantime, services inflation remained unrevised at 1.2 percent year-on-year, and non-energy goods inflation stayed at 0.5 percent. Meanwhile, the core rate was affirmed at its disappointingly subdued flash estimate of 0.9 percent, unchanged from October and November.

According to a Daiwa Capital Markets Research, the likely near-term path for inflation will be a choppy one. Because of particularly to base effects associated with past shifts in the oil price, headline CPI inflation is expected to fall in January and February to around 1.2 percent year-on-year, which would be the lowest rate in more than one year, before rising above 1.5 percent year-on-year for many months between May and year-end.

However, with the strength of euro, non-energy industrial goods inflation will continue to be below 1 percent year-on-year through to the end of 2019. And so, while services inflation might rise as the tightening labor market facilities a gradual pickup in wage growth, core inflation appears likely to rise higher only very slowly and to remain lower than 1.5 percent year-on-year even by the end of 2019.

“We now forecast average headline and core inflation at 1.5 percent Y/Y and 1.0 percent Y/Y in 2018 (versus the ECB's most recent forecast of 1.4 percent Y/Y and 1.1 percent Y/Y) and just 1.3 percent Y/Y and 1.3 percent Y/Y in 2019 (versus the ECB's forecast of 1.5 percent Y/Y and 1.5 percent Y/Y)”, stated Daiwa Capital Markets Research.

At 20:00 GMT the FxWirePro's Hourly Strength Index of Euro was neutral -38.7308, while the FxWirePro's Hourly Strength Index of US Dollar was neutral at 11.6809. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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