Euro area inflation unlikely to return to positive territory before June

Weakness in energy prices is expected to keep euro area’s HICP inflation in negative territory in March. According to Societe General, flash euro area’s HICP inflation is expected to remain -0.2%. However, energy prices have rebounded slightly on a month-on-month basis. The energy component is expected to continue putting downward pressure on the headline reading. Meanwhile, food prices are likely to be stable. In the past four months, food prices have been weakening.

In February, core inflation had decelerated to 0.8% y/y. Higher prices paid for services are likely to help recover core inflation as non-energy industrial goods are expected to weaken slightly. According to Societe Generale, euro area’s inflation is unlikely to go back in positive territory before June.

“We expect euro area HICP inflation to average 0.4% in 2016 and 1.7% in 2017, while the core metric should average 1.0% in 2016 and 1.3% in 2017”, says Societe Generale.