MW: Eurozone inflation surprises to the upside, but risks remain
Inflation in the eurozone in November wasn’t as sluggish as initially estimated, data showed on Wednesday, but deflation fears are still like to persist in coming months, analysts said.
Eurostat said its consumer-price index for the currency union rose 0.2% last month, up from the flash reading of 0.1% and beating analyst expectations. The 0.2% marks the highest level since August, but is still significantly below the European Central Bank’s inflation target of below, but close to, 2%.
In an effort to fight off low inflation and weak growth in the eurozone, the ECB in early December decided to cut interest rates further and extend the length of its 60-billion-euro ($65.56 billion) a month quantitative easing program. However, the measures underwhelmed investors, who were hoping for more aggressive stimulus and thus keeping alive anticipation of more easing in 2016.
Howard Archer, chief U.K. and European economist at IHS Global Insight, said Wednesday’s inflation data “will obviously be welcomed by the ECB, although it does not fundamentally change the overall picture of inflation being substantially under-target after a prolonged undershoot.”
“While we doubt that the eurozone will return to deflation, it cannot be completely ruled out given the current weakness in oil prices, which have hit a seven-year low in mid-December,” he said.
Inflation across most economies have been slammed sharply lower by a significant rout in oil prices. Analysts at Barclays said it has put its eurozone CPI forecast under review, as euro-denominated oil prices have fallen more than 10% since their last update on Dec. 4.
“Our expectation of headline [Harmonized Index of Consumer Prices] inflation averaging +0.7% in 2016 and +1.3% in 2017 are subject to downside risks in the order of 0.2-0.3 percentage points,” they said in a note.
