Eurozone’s headline inflation accelerates in September, ECB likely to further ease policy in December

The euro area’s headline inflation accelerated in September from the previous month. According to Eurostat, the flash estimate indicated that inflation rose 0.4 percent in September from 0.2 percent in August. This increase was anticipated and was mainly because the drag from the oil price decline is no longer present in the annual inflation figures. The same reason is expected to continue to lift the currency bloc’s inflation figures towards the start of 2017 when the headline print would rise above 1 percent, said Nordea Bank in a research note.

However, wider price pressures continue to be weak in spite of the increase in the headline print. The core inflation came in at 0.8 percent in September, close to the levels observed in the prior months. The changes do not imply that price pressures have increased in recent time. This indicates towards a direction that the ECB would further ease monetary policy during its December meeting, according to Nordea Bank.

The prevailing differences in member nations’ competitiveness are one of the reasons for aiming close to 2 percent inflation in the currency bloc. Having positive inflation in the strongest nations might make it quite easier for the economies with slow growth to improve their weak competitiveness, stated Nordea Bank. At present, inflation should rise specifically in Germany in order to have inflation moving towards that direction in the bloc. But so far, price pressures in Germany have continued to stay small and the flash estimate released yesterday did not alter the scenario.

Germany’s headline inflation came in at 0.5 percent in September and the figures do not show any considerable changes in the core inflation either. Even if the core inflation is higher on average in Germany right now, as compared to euro area, it does not indicate any signs of rising, while the difference with the other nations is limited.