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Euro Inflation Research No. 1: Inflation To Increase Sharply This Year

Published 03/05/2015, 05:32 AM
Updated 05/14/2017, 06:45 AM

Euro inflation surprised on the upside in February and consequently we revise our forecast for 2015 up and into positive territory.

The upward revision is driven by higher energy and food price inflation. Historically, commodity prices have explained most of the variation in inflation.

At the end of 2015 we expect inflation to increase sharply as there is a positive base effect from the decline in the Crude Oil price in 2014.

Although headline inflation is set to increase we forecast core inflation will stay below 1.0% during 2015 and we look for a new historical low of 0.5% in April.

Continued low core inflation should follow as wage growth will remain weak due to a large amount of slack in the labour market.

The ECB's QE programme reduces headwind to inflation through a weaker currency, but changes in commodity prices have a larger impact on inflation.

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