Euro area inflation likely to rise sharply in Q1 2016

Inflation in Euro Area continues to balance near the deflation limit, however it is prepared to rise sharply in next two months. This rise is primarily due to the drag from energy price inflation as it is supported by positive base effects because of last year's oil-price decline.

"In January, we estimate it will reach 1.0% y/y up from 0.1% y/y in November. Core inflation is also set to rise somewhat in the near term, but we do not look for a significant increase", says Danske bank in a research note. 

Euro appreciation's lagged impact in mid of this year, along with low commodity prices, should act as a headwind to the inflation of goods price.

Simultaneously, the slack in labor market should keep the service price inflation lower in 2016, until the higher wage pressure begins to help.