Euro area headline inflation likely to slowdown in remainder of 2017, says Scotiabank

Euro area’s headline inflation has oscillated between 1.5 percent and 2 percent year-on-year so far in 2017. But inflation is likely to slowdown in the remainder of 2017 and might briefly drop below 1 percent year-on-year early in 2018, noted Scotiabank in a research report.

Most of this slowdown is possibly because of unfavourable petrol price base effects that might negatively contribute 40 basis points from overall inflation. In the meantime, core inflation has accelerated to 1.2 percent year-on-year, while the pace is expected to remain widely stable from now through 2018. Underlying inflation is facing conflicting influences.

Strong above-trend GDP growth and declining jobless rate imply that slack is narrowing – arguing for faster core inflation. Meanwhile, the near 8 percent appreciation in the tradeweighted EUR exchange rate over the past 4-5 months points to downward pressure on underlying inflation.

“In the absence of sharp swings in energy and food, headline inflation is likely to reside between 1 percent y/y and 1½ percent y/y over the course of 2018 before gaining further ground towards the 2 percent y/y target during 2019”, added Scotiabank.

At 20:00 GMT the FxWirePro's Hourly Strength Index of Euro was neutral at -24.9003, while the FxWirePro's Hourly Strength Index of US Dollar was highly bullish at 102.024. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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