Final euro area consumer prices data released for May today. The annaual inflation is high as the beginning of the year, was mainly driven by volatile components, including energy and unprocessed food prices, says Barclays.
The data showed that a combination of calendar and temporary effects on the services component led the very recent sharp rise in core inflation. This suggests that it may be too early to anticipate a u-turn in the secular non-tradable disinflationary trend which started a few years ago. Perhaps for now, trend stabilisation looks more likely, according to Barclays.
Finally, the ongoing improvement in non-energy industrial goods prices sub-component, a critical test of whether accommodative monetary policy implemented by the ECB has helped import inflation from abroad, continues to be driven principally by durable goods prices, therefore keeping core (non-energy industrial) goods support for headline inflation rather modest.
"The QE programme launched by the ECB can improve the euro area inflation outlook, and it will likely be successful over the medium term. Consistent with this view, inflation is expected to remain below the ECB's price stability mandate for a while (+0.3% this year and +1.3% next), possibly beyond 2016. However, risks surrounding the inflation profile are tilted slightly to the upside though. FX pass-through may be reinforced, while rising unprocessed food prices last longer than expected", argue Barclays.
