Euro area inflation remains in negative territory in March, to hover around zero for next few months

Euro area’s March consumer price inflation accelerated slightly to -0.1% y/y. For the ECB, core rate is more important, but there are no signs of a sustained pick-up, says Nordea Bank. Acceleration in Germany’s inflation was not a wider phenomenon as inflation rates remained same in Spain, Italy and France in March.

Euro area’s core inflation rate, excluding food, energy, alcohol and tobacco, accelerated to 1% y/y. Inflation for service prices accelerated to 1.3% in March from February’s 0.9%. Most of the rise is expected to be temporary. Service price inflation is expected to decelerate in April, according to Nordea Bank. Meanwhile, non-energy industrial goods inflation decelerated to 0.5% y/y, probably reflecting the EUR’s strength since May 2015.

“We expect inflation around zero for the next few months before base effects should lift the rate to 1¼% by end-2016”, says Nordea Bank.

Base effects connected to drop in oil prices seen in 2015 will lift the inflation rate up from July onwards. ECB is expected to retain its easing bias until this happens and probably beyond, according to Nordea Bank. If downside risks to the euro area’s growth emerge and the output gap widens again, core inflation rate might decelerate easily. The central bank might be then urged to further ease policy significantly, added Nordea Bank.