Euro-area inflation has accelerated more quickly than expected recently

Euro-area CPI inflation accelerated to 0.3% y/y in May, according to the preliminary estimate, up from 0.0% in April. At the 3 June post-meeting press conference, Draghi said this was in line with ECB expectations and adds to the evidence that the governing council has taken the correct measures. 

This is the first positive inflation print since November 2014, after a low of -0.6% in January. Moreover, core CPI inflation accelerated to 0.9% y/y, the fastest growth since August 2014. 

Two major factors are behind this rapid turnaround: the sharp rise in oil prices since January, of c.50% in euro (EUR) terms; and the sharp depreciation of the EUR during the last 12 months, of c.10% in trade-weighted terms. 

Near-term, the headline CPI inflation will accelerate further, and will likely move close to the ECB's target of "below but close to 2%" around the turn of the year.This is premised on the oil-price outlook of USD 98/barrel by Q1-2016. 

"In our view, core CPI inflation likely troughed (0.6%) in April; it may revert back slightly during the summer due to base effects but we then expect it to rise, though much more gradually than headline CPI", says Standard Chartered.