In March, euro area’s headline CPI inflation returned to 0% y/y after dropping into negative territory in the previous month. The acceleration was aided by the increase in services prices because Easter came early in 2016, and also due to less effect from energy prices. However, the moderate acceleration in core inflation seems to have diminished gradually in recent months.
In Q2 2016, headline inflation is likely to be around zero and accelerate slowly in H2 2016, according to Lloyds Bank. The movement towards the ECB’s target rate will be slow as soft growth in wages and spare capacity in the economy dampen domestic demand growth, noted Lloyds Bank.
“Overall, we expect headline CPI inflation to average 0.3% for the year as a whole, before rising to 1.4% in 2017”, added Lloyds Bank.
Meanwhile, the European Central Bank in March had further lowered policy rates and also expanded the monthly pace of asset buying to EUR 80 billion. During its meeting this month, the central bank is likely to keep the policy on hold, said Lloyds Bank. The forward guidance of the central bank showed that the interest rates are likely to be at current or lower levels for a longer period of time.
