Eurozone inflation is due Wednesday, and some jobs data too, both at 1000 GMT

  • HICP flash inflation reading - January
  • Unemployment rate for December

What to expect?


  • We don't expect euro area inflation to differ greatly from where it has been over the second half of 2017 in coming months. Indeed, we expect this week's 'flash' release for January to show HICP inflation unchanged at 1.4% y/y.
  • A spike in prices in the food and transport categories owing to poor weather and the base effects of previous sharp oil price falls caused inflation to rise sharply in the early months of 2017. As those effects work their way out of the index, they will continue to affect headline inflation until at least April.
  • Core inflation should, therefore, give a better indication of inflationary trends in coming months. Our view remains that core inflation has been held down by weak domestic inflationary pressures rather than temporary factors. However, as flagged by the latest PMIs (see here), there is some evidence that domestically generated price pressures may be beginning to build as firms run into capacity bottlenecks which may begin to feed through to core inflation in coming months.


HICP inflation (Jan, flash)

  • Eurozone inflation surprised to the downside in December, falling by 0.1pp to 1.4% y-o-y.
  • Core inflation remained stuck at 0.9% y-o-y for the third month in a row, while services inflation stayed at 1.2% y-o-y.
  • Looking ahead, base effects from energy and last year's bad weather (which pushed up food prices) should drag headline inflation lower in early 2018. We expect headline inflation to stay at 1.4% y-o-y in January and fall slightly in February, before rising again.
  • We think core inflation will increase by 0.2pp to 1.1% y-o-y in January. This is partly due to base effects in social protection prices and a rise in airfares following the recent rise in oil prices.

Unemployment rate (Dec)

  • The eurozone unemployment rate fell 0.1pp to 8.7% in November, the lowest rate since January 2009. This decline was reflected across the Big 4: France and Italy saw their unemployment rates decrease by 0.1pp to 9.2% and 11.0%, respectively, while Germany's ILO unemployment rate reached a new all-time low of 3.6%.
  • For December, the employment component of the composite PMI was unchanged at 55.7 from November, but it remains at very elevated levels.
  • We expect the eurozone unemployment rate to stay at 8.7% in December.

(bolding mine)

Join the conversation in our new Telegram group