Eurozone CPI Inflation Likely To Have Remained Stable In December 2018

The Brexit deal and the course of the talks between the United Kingdom and the European Union may be in the spotlight this week, but the economic activity is ramping up as the new year has just begun. While the European Union is getting ready to take a divorce with the UK at the end of March 2019, market analysts will be scrutinising all available data to see how the EU economies will respond to the new challenges.
 
Eurozone CPI inflation rate in December 2018

On Thursday January 17th 2019, Eurostat which is the EU’s official statistical office will be releasing data regarding the Eurozone’s Consumer Price Index (CPI) inflation in December 2018. The CPI is an indicator used to measure the rate at which the prices of goods and services bought by households rise or fall, which is the rate of inflation, referred to as the CPI inflation. According to the analysts’ forecast, the Eurozone’s CPI inflation is likely to have remained unchanged at 1.6% in December 2018 on a year-to-year basis. 

Eurostat is expected to release data regarding the core CPI inflation. Core CPI inflation is inflation excluding the prices of seasonally volatile products such as food and energy. According to the analysts’ forecast, the Eurozone’s core CPI inflation is expected to have remained stable at 1.0%. The European Central Bank’s (ECB) target is to keep the Eurozone’s CPI inflation rate just below 2.0%. 

Mario Draghi: Economic developments weaker than expected

Mario Draghi, the head of the ECB, delivered a speech in the European Parliament in Strasbourg during which he said that “recent economic developments in the Eurozone have been weaker than expected and uncertainties, notably related to global factors, remain prominent.” The Italian banker told MPs that a significant amount of stimulus is still needed and that the credibility of the ECB rests on its independence. Mario Draghi also noted that “our forward guidance on the key ECB interest rates continues to provide the necessary degree of monetary accommodation for the sustained convergence of inflation to our aim.”

A report published by Nordea Markets on January 14th 2019 said that the Eurozone’s economy will take time to rebound and that the first six months of 2019 will likely be characterised by weak development. However, Nordea Markets’ analysts believe that the second half of the year will be better for the Eurozone’s economy as they expect to see some clarification in the United States-European Union relationship and the underlying potential of the economy is stronger than suggested by the recent growth numbers. The report also said that the European Parliamentary elections scheduled for May could increase political uncertainty around the time of the vote.

Analysts at BNP Paribas seem to agree with their counterparts. A report released on January 11th 2019 said that Eurozone’s economic growth is sharply decelerating with some countries such as Italy which is not very far from recession. “Extra and intra EU trade is less dynamic, in line with fading external demand, in particular coming from EMEs inflation is expected to come-back below the 2pct level, as a consequence of falling oil prices,” while BNP Paribas strategists expect the ECB to keep interest rates unchanged up to the end of the year.

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