FXStreet (Delhi) – Research Team at Deutsche Bank, expects Euro area inflation should recover gradually over the coming quarters as (1) the drag from lower commodity costs is assumed to progressively fade, (2) the weaker exchange rate is putting upward pressure on non-commodity import prices and (3) improving economic conditions and ECB support for expectations allow some normalisation in domestic inflation.
Key Quotes
“Point (1), above, is likely to mean that consumer energy inflation will rise quickly into 2016; under our assumptions, headline and core inflation are expected to converge by the end of 2016. Indirect effects via domestic production costs are however one factor working against a quick rise in underlying inflation.
(2) has been increasingly visible in some HICP components, with HICP durable goods inflation for example running at close to record highs in October. This should continue to exert some upward pressure on consumer prices through next year, especially on goods prices, but also on some services components, such as package holidays.
(3) Growth above trend and falling unemployment are expected to support margins and allow some rise in labour costs, while higher spot inflation and ECB policy should push up inflation expectations. In that context, domestic inflation is projected to rise, although only gradually. We see inflation close to 1% on average next year and around 1.6% in 2017.”
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