Euro Macro: Downward trend in inflation has a way to go – A number of eurozone member states published inflation data for September during the past few days. All reports show that the harmonized HICP inflation rate fell compared to August. France reported a decline in HICP inflation to 1.1%, down from 1.3% in August, Germany to 0.9% from 1.0%, Italy to 0.3% from 0.5% and Spain to 0.2% from 0.4%. Belgium only published inflation according to the national non-harmonized definition, which registered a decline to 0.8% in September, down from 1.3% in August.
The available detailed inflation data or written comments by the various statistical bureaus suggest that the decline in inflation was due to a sharp drop in the inflation rates of fresh food and energy, while the core rate was roughly stable. Although services sector inflation rose somewhat in France, Italy and a number of German states (largely due to a higher inflation rate of package holidays), core goods price inflation seems to have moved somewhat lower in September.
Eurostat will publish the eurozone aggregate inflation data tomorrow (Tuesday 1 October). Based on the reports from the individual states, we expect headline inflation to have declined to 0.8% in September, down from 1.0% in August, with the core rate stable at 0.9%. An outcome in line with our expectations would mean that inflation will drop below the 1%-level for the first time since November 2016.
Looking ahead, we expect headline inflation to continue to move lower in the coming months, mainly on the back of downward base effects in energy price inflation. Core inflation, which has remained stuck at a level close to 1% since the end of 2016, is expected to drift lower to end next year at around 0.8% as the ongoing weakness in demand further depresses underlying price pressures. (Aline Schuiling)