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Euro area headline inflation remains unchanged at 1.5 pct y/y in September

The final euro area inflation data for the month of September did not give out any surprise. The headline consumer price index remained the same at 1.5 percent year-on-year, still lower than the 2 percent year-on-year high for the year-to-date reached in February. However, the core inflation rate dropped 0.1 percentage point to 1.1 percent year-on-year following three stable months.

That decline showed a slight drop in services inflation to 1.5 percent year-on-year, while inflation of non-energy industrial goods remained unchanged at a subdued 0.5 percent year-on-year. On the contrary, food inflation rose to a seven-month high while energy inflation was slightly changed at 3.9 percent year-on-year.

“Looking ahead, we expect core inflation to reverse the September decline but remain close to the recent levels into the New Year. And with non-core inflation set to be a touch firmer over the near term, we expect headline inflation to tick up to 1.6 percent Y/Y in October and November”, noted Daiwa Capital Markets Research.

However, the slight upwards shift would prove temporary. The consumer price inflation appears set to retreat back some way below 1.5 percent year-on-year from December through to the second quarter 2018.

“All in all, this is an inflation outlook that will support the case for continued ECB asset purchases, albeit at a slower rate, through to the third quarter of next year”, added Daiwa Capital Markets Research.

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