Euro area’s headline inflation likely accelerated in December, to remain stable at 1.2 pct in 2020

Euro area’s December inflation data is set to release tomorrow. According to a DBS Bank research report, the euro area’s inflation is likely to have come in at 1.2 percent on a year-on-year basis, which will confirm a weaker second half of 2019. Inflation has moderated to 0.9 percent year-on-year in the July to November 2019, vz 1.4 percent in the first half.

A release close to the forecast might take 2019 average to 1.2 percent, softest since 2016. While the headline inflation continues to be benign, core rate has surprised on the upside in recent months, rising 1.5 percent year-on-year in November on stronger service prices. Considering weaker economic activity, absence of additional fall in the unemployment rate and soft inflationary expectations, the spurt in core inflation is not expected to sustain, said DBS Bank.

“Our estimate for 2020 is for the headline to stay steady at 1.2 percent, below the 2 percent target and thereby keeping the ECB from normalising policy anytime soon”, added DBS Bank.