Is an increase in Eurozone inflation plausible? – Natixis

Given the decline in the unemployment rate and the appearance of significant hiring difficulties for companies, it seems normal to expect inflation to rise in the euro zone, suggests Patrick Artus, Research Analyst at Natixis.

Key Quotes

“Such an increase in inflation in the euro zone is what is expected by various forecasters, the ECB and the financial markets.”

“But is it certain that inflation will increase in the euro zone?

• Unit labour costs in the euro zone are not picking up, despite the decline in unemployment. Recent econometric estimations have showed that the Phillips curve (the effect of the unemployment rate on per capita wage growth) has disappeared in the euro zone;
• Competition is intense, both domestically (online platforms, etc.) and externally (emerging countries);
• Oil prices are unlikely to rise further, which means that the additional inflation caused by the increase in oil prices that is currently present in the euro zone will gradually disappear;
• The appreciation of the euro caused by resurgent purchases of euro-denominated assets by non-residents will also reduce inflation in the euro zone.”