Eurozone Inflation Expectations Grow

Central banks around the world are upping their inflation forecasts, amid a surge in oil prices, but some analysts highlight a mixed picture when it comes to Europe with doubts over underlying trends in consumer price growth.

The European Central Bank, for example, back in September 2014 was projecting headline inflation of 1.4% for the eurozone in 2016. Since then, that figure has come down to 0.2% last month. But the downward trend, which observers have become accustomed to, seems to be about to change, CNBC reported.

“In December, the ECB could actually go in the other direction,” said James Nixon, chief European economist at Oxford Economics.

Based on the latest ECB data, the headline inflation across the member bloc should reach 1.2% in 2017 and 1.6% in 2018. The macroeconomic consultancy expects ECB President Mario Draghi to increase such forecasts, following the bank’s December meeting, to 1.6% and 1.7% in 2017 and 2018, respectively. The increases are expected on the back of improvements in commodities, in particular energy prices.

On Friday morning, China also surprised with upbeat inflation data. The headline consumer price index increased 0.6 percentage points in September to 1.9% year-on-year, representing a three-month high. More importantly, its consumer producer prices went up for the first time in more than four years, indicating that industrial deflation in the country could have come to an end.

Data from the International Monetary Fund showed early October that inflation in the US could reach 2.3% in 2017, even though the Fed believes that inflation will not hit the 2% target before 2018.

Meanwhile in the UK, inflation expectations are also on the rise, given the falling value of sterling.

However, analysts are not totally satisfied with the more optimistic inflation forecasts, in particular in Europe, where core inflation is still lagging.

Phillip Shaw, chief economist at Investec, told CNBC via telephone Friday that the low levels of the eurozone’s core inflation are “a particular concern.” Non-energy industrial goods, as well as wage growth, remain low across the 19 member nations.

Financial markets have started redirecting their attention to inflation prospects as the upcoming ECB meeting approaches. Expectations are that Draghi will not announce new monetary stimulus but could give indications as to what the central bank might opt for at the year-end regarding the future of its quantitative easing program.

“We do not expect the ECB to take meaningful monetary policy decisions next Thursday, October 20,” UBS said in a note Friday.