Euro-area flash inflation: Too high core inflation – Nordea

Analysts at Nordea offer their take on the flash Eurozone CPI print released earlier this Tuesday, showing that the Harmonized Index of Consumer Prices (HICP) edged higher to 7% YoY rate in April from 6.9% and the Core HICP ticked down to 5.6%.

Key quotes:

“Inflation remains much too high and while base effects from last year’s energy price increases will lead to lower headline inflation in the coming months, core inflation remains a huge concern at the ECB. The economic outlook is weak, which was underscored by banks reporting lower loan demand and by Q1 GDP, but the banking stress at the end of Q1 does not seem to have added to expectations of faster tightening of credit conditions. Thus, the ECB has more ground to cover and the preview for the May ECB meeting on Thursday with a 25bp policy rate hike and hawkish comments still stands. Further ahead, the ECB probably needs to see a clear improvement in the outlook for core inflation or a significant weakening of the economic outlook to stop hiking rates. Our baseline forecast has three more 25bp rate hikes including one this week.”