Euro area HICP inflation surprised on the downside as it remained unchanged at 0.1% y/y in November (consensus and Danske Bank 0.2% y/y). Core inflation was also weaker than expected as it declined to 0.9% y/y in November from 1.1% y/y in October (consensus 1.1%, Danske Bank 1.0%).
Energy price inflation was -7.3%, up from -8.5% y/y in October. The less negative impact from energy prices is due to positive base effects as energy prices were flat on the month. Looking ahead, base effects should result in even higher headline inflation as the drag from energy price inflation is set to fade further. In a scenario where oil and gasoline prices remain unchanged around the current levels, the drag from energy price inflation will approach zero and headline inflation will increase above 1.0% y/y already in January 2016.
Core inflation, which can be split up in non-energy industrial goods and service price inflation, declined to 0.9% y/y. The decline was mainly due to service price inflation, which was 1.1% y/y in November, down from 1.3% in October. Non-energy industrial goods price inflation was 0.5% y/y in November, slightly lower than the print of 0.6% y/y in October.
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