Euro area’s flash headline inflation accelerates marginally in February, core rate remains subdued

Euro area’s headline consumer price inflation saw a marginal rise in February after falling for three straight months. On a year-on-year basis, inflation came in at 1.5 percent, a slight acceleration from 1.4 percent in the prior month, showed Eurostat’s flash estimate. February’s print was consistent with consensus expectations and was underpinned by yesterday’s preliminary releases for some national economies. The slight rise implies that the energy prices’ negative effect has run its course for now, noted Lloyds Bank in a research report. Since late December, global oil prices have recovered, with Brent crude currently above USD 65 per barrel.

However, it is possible that the European Central Bank will still have to downwardly revise its inflation and growth projections for next week’s policy meeting. The central bank’s December projections had read inflation at 1.6 percent and 1.7 percent for 2019 and 2020, respectively.

Today’s release underlined that ‘core’ inflation, excluding the volatile food and energy components, continued to be subdued, falling back to 1 percent year-on-year from 1.1 percent year-on-year. The limited breakdown of the data in the ‘flash’ release indicates a drop in services inflation to 1.3 percent year-on-year. The other broad part of core inflation, ‘core goods’, was stable at 0.3 percent year-on-year. In all, the ECB will not be in a hurry to start hiking interest rates.

“For next week’s policy meeting, we don’t expect the ECB to alter the time-contingent part of its forward guidance just yet. Instead, we expect it to restate that interest rates are expected to “remain at their present levels at least through the summer of 2019””, added Lloyds Bank.

At 13:00 GMT the FxWirePro's Hourly Strength Index of Euro was neutral at -23.884, while the FxWirePro's Hourly Strength Index of US Dollar was neutral at -10.9602 more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex