Euro area headline inflation accelerates year-on-year in September, core rate remains weak

Euro area’s final inflation data for the month of September affirmed the soft underlying price pressures. The final data confirmed the flash estimate. The headline inflation came in at 2.1 percent year-on-year, a slight acceleration from 2 percent in the prior month. Meanwhile, the core rate continues to be disappointingly low at 0.9 percent on a year-on-year basis. According to a Nordea Bank research report, the core rate is expected to recover in October.

The contribution from services inflation dropped marginally to 0.57 percentage points from 0.59. The upward momentum in core inflation appears to have waned.

Looking into details, there was no major recovery in package holiday prices after the huge fall recorded in August, so it is difficult to blame the soft figure on one-offs this time, noted Nordea Bank.

Country wise, soft underlying price pressures in France, Italy and Spain are still keeping the Euro-area super-core inflation low, while core inflation is at a higher pace in Germany compared to the euro area average.

The latest figures underline that there are still downside risks to ECB’s inflation forecasts. Nevertheless, the core inflation is expected to shift upwards when very soft observations from last year will disappear from annual figures.

Subdued underlying inflation developments underpin the view that the first rate hike would take place just in December 2019. Nevertheless, these data might not make the ECB move ahead as far as a rise in inflation is concerned, and the net asset purchases are still set to conclude by the end of this year.

“After all, recent wage data increase hopes that wage growth is picking up, which should gradually be reflected in core inflation as well”, added Nordea Bank.

At 12:00 GMT the FxWirePro's Hourly Strength Index of Euro was bearish at -79.5606, while the FxWirePro's Hourly Strength Index of US Dollar was bullish at 95.3888. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex