Euro area's CPI likely to rise next year

The renewed fall in commodity prices since the middle of this year has helped to push Euro area's headline CPI inflation back into negative territory at -0.1%y/y in September. 

More importantly for policy makers, it looks as if the expected recovery in inflation in 2016 and 2017 will be shallower than predicted only last month in the ECB's staff economic projections. 

"Those projections showed a rise in CPI inflation from 0.1% this year to 1.1% in 2016 and to 1.7% in 2017. There are good reasons to believe that the inflation outlook has weakened since then, not least because the euro has appreciated more than assumed in the ECB's economic forecasts", says Lloyds bank. 

Inflation could, therefore, undershoot the 2% target ceiling by even more than the September forecasts. Consequently, ECB rhetoric remains dovish and policy is biased towards more policy stimulus.