Euro area headline inflation rises in March, likely to hover around 1.5 pct in 2018

The headline consumer price inflation in the euro area rose as expected in the month of March. The CPI rose to 1.4 percent in the month from 1.1 percent in February. The rise in inflation was mainly due to higher food price inflation.

Meanwhile, core inflation surprised to the downside, remaining at 1 percent year-on-year, as compared with consensus expectations of 1.1 percent. While the main reason was soft development in non-energy industrial goods, also the early timing of Easter probably stimulated inflation slightly less than anticipated.

In particular, service price inflation in Germany on a sequential basis was rather slow. Moreover, the fall in non-energy industrial goods might imply that the stronger EUR is beginning to pass-through to consumer prices, noted Nordea Bank in a research report.

There are no reasons to change the view of very gradually accelerating inflation. The ECB is expected to exit from its loose monetary policy very gradually. According to Nordea Bank, euro area’s headline inflation is expected to linger around 1.5 percent for the remainder of 2018. The negative contribution from oil is expected to be largest in annual terms in the start of next year and part of the softness in expected oil price would be compensated by core inflation.

“We expect core inflation to accelerate in monthly terms but only gradually. Although the robust growth increases companies’ possibilities to increase price margins and boosts wage pressures, the process is gradual”, stated Nordea Bank.

Core inflation is expected to rise gradually as long as growth continues to be above its potential.

At 13:00 GMT the FxWirePro's Hourly Strength Index of Euro was slightly bearish at -53.4089, while the FxWirePro's Hourly Strength Index of US Dollar was neutral at -47.9279. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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