Euroland inflation is receding further. In January the annual rate shows a rise of 1.4%, as against 1.6% in December 2018. The reasons for the downward movement are (as in past months) energy prices, which by comparison with the previous year are now exerting only modest pressure on prices. As a result, doubts are growing whether the ECB will achieve its inflation target of “close, but below 2%”.
The hopes of ECB President Mario Draghi have rested of late on the countries that are currently having to contend with an increased lack of skilled labour and rising wage increase levels, above all Germany. There, but also in many other Euroland member states, the momentum on the wage front has at best been at a sound level. The harmonised inflation rate steadied in Germany at 1.7% in January. In other words, at least in coming months, no noteworthy boost to the inflation rate is to be expected at the EMU level.
A glance at the so-called core rate also bears this out, meaning those components for the less-volatile prices of services and non-energy industrial goods. They are also a yardstick for the degree to which wage momentum translates into greater inflationary pressures. For years now, the core rate has moved within a corridor of 0.6% to 1.3% and no upwards trend is to be discerned here. Although it rose slightly in January, at 1.2% it remained at a muted level.
Our outlook for the current and the coming year remain correspondingly cautious. With an expected inflation rate of 1.7% for 2019 and 1.5% for 2020, it is visibly below the ECB target figure. Prices for crude oil and to a certain extent for food, too, should spark greater volatility. However, we do not for the time being expect any sustained rise above the 2% mark.