Inflation continues to hover at low levels in the Eurozone. Last month, core CPI inflation stood at only 0.7% YoY, certainly disappointing news for the ECB.
In the details, when looking at different categories, while services inflation remains stable (at 1.2%), the recent disappointment is mainly due to weak core goods inflation, a category which showed price rises of only 0.3% YoY in March and April. For this category, the average during the prior two months stood at 0.6%.
It is likely that prior strength of the euro is the main culprit for this reading, and, consequently, weak core CPI inflation readings are likely to persist in coming months. This would lead to a very prudent ECB policy, which is in line with our baseline scenario.
As to this week’s macroeconomic publication, the flash PMI readings for May will give important signals on current activity. We expect stabilization of growth, in line with the recent 2.5% GDP growth that was published last week.
Gero Jung – Chief Economist – Mirabaud AM