Euro area headline inflation accelerates in December on energy prices

Euro area inflation accelerated markedly in December, as expected. On a year-on-year basis, the preliminary data showed that the consumer price inflation accelerated to 1.3 percent from 1 percent, owing mainly to energy prices. Meanwhile, core inflation rate, excluding energy, food, alcohol and tobacco, continued to be the same at 1.3 percent.

Last year, the core rate was markedly distorted by a changed calculation method in Germany for the prices of package holidays, noted Commerzbank in a research report. In December, this pushed up the core rate by 0.1 percentage points.

This distortion might disappear in the New Year, so that underlying inflation is likely to fluctuate about 1.2 percent over the course of 2020, said Commerzbank. Firms in individual nations, such as Germany and the Netherlands, now appear to be able to pass on some of the higher labour costs to consumers.

“In view of the weakening economy, we do not expect any sustainable increase in the underlying inflation for the euro area as a whole. We also expect a 1.2 percent increase in headline inflation in 2020. An upside risk is the conflict between Iran and the US, which recently pushed the price of oil to just under 69 US dollars per barrel”, stated Commerzbank.