Euro area headline inflation slows in January, likely to reach above 2 pct in summer

The euro area economy is booming, while the joblessness has fallen to its lowest level in eight years. However, there are still no signs of stronger underlying inflation. Although the core inflation rate rose slightly to 1 percent in January, this is hardly a turnaround given the still weak wage growth. The headline consumer price index dropped to 1.3 percent year-on-year in January from 1.4 percent.

The core rate, which excludes energy, alcohol, food and tobacco, rose from December’s 0.9 percent to 1 percent, as expected. However, this is barely the start of a sustained rise of the rate. It might take some time yet before the solid economic growth and marked drop in jobless rate bolster wage inflation, noted Commerzbank in a research report.

Moreover, the emerging rebound of tourism in Turkey should suggest that tourism companies in southern European nations can no longer increase their prices as much as in spring 2017, which temporarily drove the core inflation rate to 1.2 percent. The drop in the inflation rate for package holidays and accommodation will push down inflation by around 0.1 percentage points on average this year.

The main reason for the decline in headline inflation was the falling energy inflation that dropped 2.9 percent in December to 2.1 percent in January. But the inflation rate should have reached the trough now for this year.

“Even if the price for a barrel of Brent oil edges down towards 60 dollars again over the year, as we expect, the inflation rate will climb above 2 percent at some point in the summer”, added Commerzbank.

At 15:00 GMT the FxWirePro's Hourly Strength Index of Euro was neutral 8.12981, while the FxWirePro's Hourly Strength Index of US Dollar was slightly bearish at -71.8184. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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