Brent, not China could derail the inflation turnaround in Eurozone

After a turnaround in Q2 2015, the euro zone is expected to remain in lowflation in 2015. Although the threat of deflation somewhat receded in the past quarter and continues to remain moderate, external disinflationary pressures are re-emerging amid falling global commodity prices and deflationary trends emanating from EM, especially spillover from China.

It is believed inflation is likely to average 1.1% in 2016 and then 1.5% between 2017 and 2019, still comfortably below the ECB's medium-term target of 2.0% inflation. In 2016, Headline inflation is expected to converge with core inflation based on assumption of an improvement in oil and food prices alongside a weaker euro.

"We believe that the ECB will probably continue to pursue an accommodative monetary policy beyond 2016. In non-energy industrial goods, we see that apart from energy prices, the state of the economy plays a larger role in non-energy goods prices compared to external factors such as China's prices",says Societe Generale.