Eurozone inflation sees moderate rise over the medium term

The strong decline in oil prices has led Eurozone consumer price inflation into negative territory.

Inflation excluding energy prices was at 0.6% y/y most recently and has fallen much less than overall inflation.

So while the inflation rate is clearly below the ECB's target of "close to but below 2%", the Euro area is not in deflation.

There is no evidence at all that consumers are postponing major purchases because they expect even lower prices, which would be a sign of deflation.

Nordea Bank notes...

• The risk of future deflation has declined for various reasons. Growth above trend in 2015 and 2016 leads to a narrowing of the output gap, decreasing the downward pressure on inflation due to underutilised resources.
  
  
• we expect oil prices to recover to an average of USD 75 per barrel (Brent) in 2016 and the EUR to weaken a bit more, leading to higher import prices. Therefore inflation is likely to pick up over the medium term. 
  
  
• However, until summer, we expect rates to hover around zero.