Eurozone: Inflation to stay low at the end of 2018 - Natixis

According to Patrick Artus, Research Analyst at Natixis, it is not hard to see inflation being very low at the end of 2018 in the euro zone.

Key Quotes

“The financial markets and the ECB expect inflation to gradually rise in the euro zone. And yet:

• Unit labour costs, which determine core inflation, are not picking up and are increasing by less than 1% per year;
• Oil prices are unlikely to increase much further, which means that the additional (headline) inflation caused by the rise in oil prices will gradually disappear;
• The euro looks likelier to appreciate (given the capital inflows in the euro zone, the US external debt and the rise in the euro’s share in foreign-exchange reserves), leading to imported disinflation.”

“In a scenario where oil prices remained stable in 2018 and the euro appreciated to 1.30 against the dollar (which implies a decoupling of oil prices and the USD/EUR exchange rate), headline inflation would be lower than 1% at the end of 2018, which is well below the consensus.”