Euro zone Inflation outlook 2016

ECB's easing is dependent on incoming economic data with the inflation development being crucial. Market anticipates 0.9pp increase in headline inflation over the next two months, while core inflation is also expected to be higher. The jump in inflation is due to base effects, but should nevertheless ease the pressure on the ECB and keep it off the trigger.

The outlook for inflation has deteriorated again over the last few weeks and preliminary HIPC inflation for December failed to pick up, remaining at +0.2% and +0.9% for headline and core respectively. The European Commission lowered its inflation outlook for 2016 to 1 percent, from a previous estimate of 1.5 percent. It sees price growth at 0.1 percent in 2015 -- unchanged from its spring forecast.

A new round of easing may include more asset purchases and another cut in the deposit rate. In September, the central bank forecast inflation to accelerate to 1.7 percent in 2017, barely in line with its goal.