Euro area inflation accelerates to four-month high in August, likely to remain little changed in 2017

The flash estimates of euro area inflation for the month of August were released today. The headline consumer price inflation rose 0.2 percentage points to 1.5 percent year-on-year, which is a four-month high. However, this is still below the 2 percent year-on-year higher watermark for the year-to-date seen in February. The headline print came in slightly above the consensus expectations.

Energy inflation mainly drove the inflation. It almost doubled to 4 percent year-on-year, the most in three months, while other key components remained stable from July. Thus, core inflation stayed at 1.2 percent year-on-year, which is the top of the range of the past four years but still hardly in line with the convincing uptrend in underlying inflation that the ECB is seeking to justify an immediate exit from its highly accommodative policy stance.

“Looking ahead, we expect euro area inflation to remain little changed over the remainder of the year to average 1.5 percent Y/Y in 2017, with core inflation likewise moving broadly sideways to average just 1.1 percent Y/Y this year”, noted Daiwa Capital Markets Research.

Meanwhile, the headline inflation is expected to drop in the first quarter of 2018. However, thereafter a gentle uptrend in core components is expected to emerge, as companies increase margins against the backdrop of firm economic demand and as wages finally respond to diminishing slack in the labor market., added Daiwa Capital Markets Research.

At 19:00 GMT the FxWirePro's Hourly Strength Index of Euro was neutral at -28.502, while the FxWirePro's Hourly Strength Index of US Dollar was slightly bearish at -58.2855. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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