Expect the ECB to play down any jump in inflation numbers to start the year

Author: Justin Low | Category: News

Inflation readings may be a bit more volatile in 1H 2021

Eurozone inflation data is in focus today and estimates are for headline annual inflation to jump to +0.6% y/y from -0.3% y/y in December. Core inflation is estimated to pick up as well, moving to +0.9% y/y from the record low +0.2% y/y previously:

That said, there are a few factors at play that will distort the January readings as well as those that will follow in the coming months, in all likelihood.

As mentioned last week, the German readings are affected by the VAT cut expiration and also the introduction of a new CO2 tax this year. Adding to that will be fluctuating energy base effects (plunge in oil prices last year) as well as possible changes in consumption pattern i.e. making up for pent-up demand during the winter months.

As such, this isn't quite the sort of inflation pressures that the ECB is looking for. Hence, expect policymakers to continuously brush that aside and reaffirm the messaging that they will maintain easy policy for an extended period of time.

Invest in yourself. See our forex education hub.
By continuing to browse our site you agree to our use of cookies, revised Privacy Notice and Terms of Service. More information about cookiesClose