Eurozone: Rise in headline inflation is likely to prove short-lived - Rabobank

Analysts at Rabobank note that the Eurozone headline inflation ticked higher in August with YoY rate rising to 1.5% (1.4% consensus) from 1.3% in July but Rabobank’s Elwin de Groot argues, however, that this rise in headline is likely to prove short-lived and we could see headline inflation easing off again in the final quarter of this year and, more notably, early next year.

Key Quotes

“The recent rise in the EUR (+8% in effective terms) may amplify that decline in headline inflation (this explains why ECB officials are increasingly concerned about the fast pace of euro’s gains). Remarkably, core inflation was unchanged at 1.2% in August, where German figures on Wednesday had indicated a gentle rise. Altogether, though, this basically confirms our view that it will take considerable time before the ECB can say that its inflation goals have been met. The upcoming decisions in coming months to adjust QE downward will be mostly driven by technical factors (limits being reached in the PSPP), yet motivated by strong economic data and a fall in perceived deflation risk, according to Elwin.”