Eurozone: Another negative surprise from core inflation – Nordea Markets

Tuuli Koivu, Research Analyst at Nordea Markets, note that the Euro-area core inflation surprisingly fell to 0.9% y/y in September (against our expectation of a rise to 1.1% y/y).

Key Quotes

“Although the second decimals explain partly the low observation (core inflation at 0.93% in September compared to 0.96% in August), the fact that the number fell clearly short of expectations raises questions regarding the outlook. Strong food and energy prices took the headline inflation one notch higher to 2.1% y/y, just as expected.”

“Regarding core inflation, it is worrying that at this stage it is difficult to find any single good explanation for the low number, partly because of the limited details in the flash.”

“The new numbers certainly increase the downside risks to our and to the ECB’s inflation forecasts.”

“At this stage, we continue to expect that core inflation will shift upwards in October when very weak observations from last year will disappear from annual numbers.”

“The weak numbers support our view that the first rate hike will take place only in December 2019.”