Euro area core inflation accelerates slightly in July, headline print likely to rise in months ahead

Euro area’s core inflation accelerated a bit in July and begins to show an upward trend. This supports the view of a gradual ECB exit, noted Nordea Bank in a research report. The headline inflation continued to be slow at 1.3 percent, while the core inflation rose to 1.2 percent. The favourable economic development thus appears to finally increase price pressures as has been anticipated. But the change in trend is just gradual and still vulnerable to one-off factors.

The main factor behind higher core inflation was likely service sector in Germany where the recent monthly changes have been higher than in earlier years.

“We continue to expect the ECB to announce either in September or in October that the asset purchase programme will be scaled down from the beginning of 2018 onwards”, stated Nordea Bank.

The annual headline inflation of the currency bloc stayed constant at 1.3 percent in July. Amongst the large economies, the flash estimate was highest in Spain and lowest in France. Meanwhile, Germany’s HICP estimate was 1.5 percent.

The drop in annual headline inflation figures registered since the winter is mostly because of the oil price whose contribution to inflation has dropped significantly. Currently, oil is more expensive than one year ago and if it continues to be at the current level, it might push the headline inflation print slightly higher in the months ahead, added Nordea Bank. However, the recent appreciation of the euro is taking some of that effect away and is pushing down euro area import prices.

At 22:00 GMT the FxWirePro's Hourly Strength Index of Euro was bullish at 90.9213, while the FxWirePro's Hourly Strength Index of US Dollar was bearish at -71.0008. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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