Euro area inflation weakens in October, likely to decelerate to just 1 pct at start of 2018

The euro area inflation for the month of October came in weak. The headline inflation rate dropped 0.1 percentage point from last month to 1.4 percent year-on-year. Services inflation decelerated to 1.2 percent, while non-energy goods inflation dropped to 0.4 percent. Meanwhile, core inflation dropped 0.2 percentage points to a five-month low of just 0.9 percent year-on-year.

The softness in services inflation was because of reduced Italian education fees and German package holiday prices. The latter might be temporary, and therefore a modest rebound in the annual rates of headline and core inflation is expected in November, said Daiwa Capital Markets in a research report. However, the trend in inflation appears highly likely to stay subdued for the next few quarters.

“Indeed, we expect headline inflation to fall back to just 1.0 percent Y/Y at the start of 2018, and - not least since wage growth remains sluggish - core inflation to remain close to 1.0 percent Y/Y over the coming twelve months”, stated Daiwa Capital Markets.

Therefore, in spite of widespread economic growth momentum and continued strong job creation, the inflation figures are expected to continue to illustrate why the ECB would carry on with its net asset purchases throughout the whole of 2018 and is highly unlikely to hike interest rates until mid-2019 at the earliest added Daiwa Capital Markets.

At 19:00 GMT the FxWirePro's Hourly Strength Index of Euro was neutral at 49.7132, while the FxWirePro's Hourly Strength Index of US Dollar was neutral at 21.1669. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

FxWirePro launches Absolute Return Managed Program. For more details, visit http://www.fxwirepro.com/invest