ECB staff forecasts may rise somewhat - AmpGFX

Greg Gibbs, Director at Amplifying Global FX Capital, notes that the ECB staff said that it forecasts core inflation to rise from 0.9% in 2016 gradually over the forecast horizon to 1.7% in 2019. (1.1% in 2017 and 1.4% in 2018).

Key Quotes

“The ECB December staff forecast was for CPI inflation to average 1.3% in 2017 (well below the 2.0%y/y in Feb).  The staff projections anticipated a bump in inflation early in 2017 to fade due to the flattening out of the annual increase in oil prices (based on the oil futures curve).”

“The low in oil prices was in the first months of 2016, and thus the year-on-year comparisons boost inflation data in the first two to three months of this year.  Oil prices have been relatively stable since December last year, and should not offer a reason for an increase in the staff inflation forecasts.”

“However, the recent strong headline inflation readings, combined with improved global economic confidence might suggest scope for some improvement in the inflation outlook. The ECB staff forecast headline inflation to rise from 1.3% in 2017 to 1.5% in 2018 and 1.7% in 2019.”

“On wages, it said it expects compensation per employee growth to rise from 1.2% in 2016 to 2.4% in 2019.”