Euro area headline inflation decelerates in April

Euro area inflation surprised on the downside in April after the subdued country-level data. Core inflation in particular came in below expectations at 0.7 percent, indicating that price pressures in the area continue to be sluggish and the ECB would not hurry in its exit.

Even wore, expectations were already taken lower by the country-level data on service prices that was published in the earlier days and showed that the Easter effect was unsuccessful in materializing in 2018 and price developments in general continues to be brittle. Headline inflation slowed to 1.2 percent.

Even if the monthly volatility in the euro area inflation is sometimes considerable and seasonal adjustments are complicated by example the varying timing of Easter, the subdued figures indicate that price pressures in the Euro area continue to be weak. The preliminary data had indicated that the softness in service price inflation was widespread throughout nations and although the figures are expected to reverse in the months ahead, the correction is expected to be just partial, noted Nordea Bank in a research report.

Therefore, there is a considerable downside risk for the ECB staff projection of 1.1 percent for core inflation in 2018. The low figures in March-April raise worries that the momentum in inflation that was building up at the start of this year is lost again. Along with subdued figures on the real economy, this suggests that the European Central Bank would be careful when exiting from the very loose monetary policy. The data underpins the rather dovish ECB view and expectation that the ECB is not going to make any decisions before July, added Nordea Bank.

At 13:00 GMT the FxWirePro's Hourly Strength Index of Euro was slightly bearish at -71.717, while the FxWirePro's Hourly Strength Index of US Dollar was highly bullish at 122.942. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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