Little price pressure in the euro area despite the Christmas bustle.

Another decline in euro area inflation at the end of 2017 was hardly surprising, with the annual rate falling in December to a comparatively meagre +1.4 percent. This is compared with last February, when inflation was at the ECB-compliant +2.0 percent. The trend has clearly moved in one direction since then: south. This is down to a well-known factor. Inflation was driven by energy prices in particular, as was the case in the course of the year. The price pressure from this component eased once again at the end of the year, with the year-on-year increase in the price of oil shrinking from a strong +18 percent in November to a negligible low of +1.4 percent in December.

The domestic economic influences on price performance on the other hand remain virtually unchanged. This is evident from the so-called core rate, which reflects the price trend of services and industrial goods excluding energy. It has fluctuated in a stable range for more than two and a half years in the same corridor of between +0.8 and +1.2 percent. At +0.9 percent, the core rate in December was once again at the lower end of the range. There are still no signs of a marked increase.

Despite pursuing its ultra-loose monetary policy, the ECB is once again quite some distance away from its most important goal. The central bank is aiming for inflation of around two percent. It can only hope that the economic recovery will give inflation a greater boost than before. Despite extremely good economic development, price pressure on the domestic front remains weak. If the price of oil remains roughly unchanged, energy prices are unlikely to offer much impetus to the overall rate of inflation. The strong euro-dollar exchange rate is also expected to dampen inflation. All in all, we do not anticipate any visible stimulus of price momentum in the euro area in the coming months either.

Rate this article


Thank you for your rating. Your vote:
There is no rating yet. Be the first! Current average rating: 0

Leave an answer

Your e-mail address will not be published. Required fields are marked *