ECB set to lower its inflation forecast – Danske Bank

Pernille Bomholdt Henneberg, Chief Analyst at Danske Bank points out that the ECB will release updated inflation projections at the meeting and they expect it to lower its inflation forecasts for 2018 and 2019.

Key Quotes

“The lower projection is due mainly to the euro appreciation since the forecast update in June as mentioned above. That said, we do not believe the ECB will revise its forecast for 2019 all the way down to 1.3% as suggested by the OECD’s global model.”

“We expect the ECB to publish inflation forecasts of 1.2% for 2018 and 1.5% for 2019. Together with these modest downward revisions, we expect Draghi to mention that there is downside risk to the inflation forecast as the strengthening of the euro will be a headwind to inflation in coming years.”

“The latest inflation data showed inflation was back at 1.5% in August but the rise was driven mainly by energy price inflation. In our view, it is more important for the ECB that core inflation has gone from 0.8% in Q1 to 1.1% in Q2 and was1.2% in the first two months of Q3.”

“That said, the ECB is focused on the drivers of core inflation and in the Economic Bulletin from August, it said that if the volatile components of core inflation were excluded there had only been a modest uptick in recent months and concluded ‘most alternative measures of underlying inflation also do not indicate a pickup yet’.”