Eurozone CPI to look out for this week – BBH

Analysts at BBH suggest that the final read of the January eurozone CPI is going to be the key economic release for the week as the preliminary report is usually reliable. 

Key Quotes

“It said that the headline rate fell 0.9% on the month for a 1.4% year-over-year rate.  Prices in Europe often fall in January.  The 0.9% decline is at the smaller end of the -0.8% to -1.5% range over the past five years.”

“Recall that the headline pace peaked at 2.0% last February, an inflation scare that did not lead to much of a euro rally, ahead of the Dutch and French elections. A Bloomberg survey shows a median expectation that the headline rate may be revised to 1.3%, which would match last year's lows.  After holding steady at 0.9% through Q4 17, the core rate edged to 1.0% in the initial estimate.”

“The impulses coming from the exchange rate and oil prices suggest upward pressure on the headline rate and less pressure on the core rate going forward.  The euro has appreciated around 5% against the dollar since the staff's last forecast, while oil prices have risen around 2%.   Good for German metal workers and engineers who fought for better pay increases and some flexibility in hours, but there are serious questions about how representative the settlement is going to be in Germany and Europe.”

“The initial estimate for February CPI is due February 28, and that will be the last input ahead of the ECB meeting on March 8. That is a few days after the Italian election and the result of the SPD decision whether to accept the deal with Merkel's CDU/CSU and enter a coalition government again.”

“Investors are likely to be sensitive to eurozone inflation data.  It is seen as important for the current differences between hawks and doves.  That said, there appears to be a consensus currently that accepts a reduction of asset purchases after September, but to conclude at the end of the year.  Since the first rate hike (from minus 40 bp deposit rate) will start sometime after the end of purchases, the implication is that pushing the QE to the end of the year means a rate hike likely no sooner than mid-2019.”