Eurozone: A jump in inflation without reason to cheer - ING

Bert Colijn, Senior Economist at ING, notes that the Eurozone inflation rate increased from 0.2% to 0.4% in September, but concerns about the price growth environment remain high with core inflation stagnating at 0.8% and unemployment stuck above 10%.

Key Quotes

“In a speech at the European Parliament on Monday, ECB president Draghi again stated that the QE program is working. While this is probably the case, the impact on some key indicators has not been more than limited for now. Lending to households and businesses is only recovering at a subdued pace and the core inflation rate remains below 1%.

Labour market data showed that the unemployment rate stayed at 10.1% in August, with the number of unemployed marginally increasing. This is the fourth month in which unemployment is at 10.1%. This stagnation in unemployment declines poses concerns for the strength of Eurozone domestic demand and causes wage pressures to be delayed further. Surveys also showed just a marginal uptick in selling price expectations in September, which means that core inflation is unlikely to pick up significantly in the coming quarters.

The main reason for the improvement in inflation was the fading out of the negative energy price effect. At USD48.60 , the oil price is now marginally higher than 1 year ago and even though there is a delayed price effect on petrol, this is starting to push the inflation rate higher. The negative effect of energy prices on inflation fell further from -5.6% in August to -3% in September.

The OPEC deal that was struck this week will likely cause the 12-month rate of change in energy prices to continue to improve. With that, it will push the headline inflation rate higher in the coming months as the oil price continued to decline in the second half of 2015. A structurally improving inflation rate seems to be further away still, as core price pressures fail to mount for now.”