Euro area headline inflation eases again in January

Euro area headline inflation dropped for a third straight month, reflecting the effect of lower energy prices. The consumer price inflation eased to 1.4 percent in January, coming in line with market expectations, from 1.6 percent year-on-year in December. In October, it was just 2.2 percent and it shows the significant effect of the fall in global oil prices.

However, the rebound in oil prices in the past month implies that the downward effect of the energy component might have run its course for now, noted Lloyds Bank in a research report. As such, it is possible that the headline inflation steadies or rises from here. However, the ECB is still set to downwardly revise its inflation forecasts at the next policy meeting in March.

The fall in today’s headline figure masks the upward movement in services inflation to an eight-month high of 1.6 percent year-on-year from 1.3 percent year-on-year in December. There is no detailed breakdown of services inflation in the ‘flash’ release, but it explains the slight rise in underlying ‘core’ inflation to 1.1 percent year-on-year from 1 percent year-on-year. This is still a soft level, though, with core goods inflation staying soft at 0.3 percent year-on-year.

“While the move higher in services inflation is mildly encouraging for the ECB, it remains the case that the fall in unemployment and pickup in wage growth is taking longer than expected to feed through to core CPI”, added Lloyds Bank.

At 15:00 GMT the FxWirePro's Hourly Strength Index of Euro was bullish at 93.6937, while the FxWirePro's Hourly Strength Index of US Dollar was neutral at -15.0753 more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex