Inflation bottomed in EA,but likely to remain subdued

Despite encouraging signs that the rebound in tradable goods prices has momentum, we believe services inflation has yet to turn the corner: after an uptick in May, services inflation was back to 1% in June, its lowest level since the start of EMU, suggesting that it may be premature to expect a solid upward trend. 

Services inflation is likely to remain subdued, especially since some reforms aimed at increasing competition in some member states are likely to put downward pressure on margins, while wage growth should turn up only gradually, owing to the still high level of unemployment. 

Overall, euro area inflation is still expected to average 0.3% this year and 1.3% in 2016 under market assumptions (FX frozen and future prices for oil) and 0.3% and 1.5% under Barclays' assumption.