The gains made by the euro against the U.S. dollar since the beginning of the year have provided ample grounds for discussion, although we have yet to identify any great danger for the EMU’s current strong economic development.
However, the higher exchange rate may well have consequences for the rate of inflation of consumer prices. The stronger euro should ensure that consumer goods which originate from countries outside the Eurozone are subject to less drastic price increases than we had originally anticipated in our forecast. Moreover, when calculated in euro, crude oil imports are becoming less expensive, in turn making petrol and heating cheaper as well. Compensatory effects such as lively consumer demand as a result of higher wages are hardly expected despite the strong economic recovery taking place currently.
We have therefore adjusted the EMU inflation forecast, based on the Harmonised Index of Consumer Prices (HICP) across Europe, for the coming year. We now expect an average Eurozone inflation rate of 1.3% for 2018. Our previous forecast was 1.5%. We are sticking with our 2017 forecast of a 1.6% increase in consumer prices.
Despite the continued robust economic momentum and very low levels of unemployment in the USA, inflationary pressure remains incredibly restrained there as well. Between March and June 2017, the average month-on-month change in consumer prices was 0%; or, in other words, consumer prices stagnated during this period. The energy sector provided a somewhat dampening effect, but other commodity prices were also curbed to a greater extent than in previous months. Service prices certainly continued their upward trend, although it was less pronounced than before.
We have therefore also reduced our U.S. inflation forecast: for this year, we expect an inflation rate of 2.1% (previously: 2.2%) in addition to a rate of 2.2% for 2018 (previously: 2.4%).