Eurozone’s core inflation is likely to remain flattish in coming quarters - ABN AMRO

Analysts at ABN AMRO think that the Eurozone’s headline inflation was probably stable (at 1.5% y-o-y), though core inflation likely slipped to 0.9% y-o-y, when the flash estimate for March is published the coming Monday.

• “Early data from selected member states went in different directions (German HICP down to 1.5% from 1.7%, Spain up to 1.3% from 1.1% and Belgium CPI to 2.3% from 2.2%). The softness in the core partly reflects German package holidays, though underlying trends remain extremely subdued.”
• “Despite recent ECB downgrades, we continue to think the central bank remains too optimistic in expecting core inflation to embark on a clear upward trend over its forecasting horizon. One factor behind this view is that we continue to see slack in the eurozone labour market on aggregate.”
• “We think that the moderate rise in wage growth we have seen is a catch up to past rises in headline inflation rather than a reflection of labour market tightness. Indeed, we think that wage growth will slow going forward. Core inflation is likely to remain flattish in coming quarters.”
• “Given lower than expected underlying inflationary pressures in a number of developed economies that are more advanced in their cycle than the eurozone, it seems rather heroic to expect a significant acceleration in core inflation in the eurozone.”