Euro area HICP inflation to remain in negative territory until May

Euro area’s final HICP inflation for March is expected to remain unchanged from the flash reading of -0.1% y/y, according to Societe Generale. The rebound in the reading for March was mainly due to recovery in prices paid for services, possibly because of Easter holidays that was followed by a slight rise in food prices, noted Societe Generale. According to flash estimate core inflation accelerated to 1% y/y from 0.8% y/y due to  higher service inflation.

Meanwhile, the energy component dropped to -8.7% y/y from -8.1%, continuing it decline. In contrast to that, food inflation accelerated slightly to 0.7% y/y. Growth in prices paid for services rose sharply to 1.3% y/y from 0.9% y/y, whereas non-energy industrial goods inflation decelerated to 0.5% y/y.

“Looking ahead, we expect euro area HICP inflation to remain in negative territory until May, before recovering sharply (due to base effects) in H2 16 to average 0.4% in 2016, followed by 1.7% in 2017, while the core metric should average 1.0% in 2016 and 1.3% in 2017”, said Societe Generale.