Low Eurozone October Core-CPI reinforces concerns about deflationary risks - ING

FXStreet (Łódź) - Martin van Vliet from ING comments on the Eurozone inflation numbers released today and showing that year-over-year Core CPI slid to 0.7% in October from 0.8% in September.

Key quotes

"According to a 'flash' estimate by Eurostat, headline inflation in the 18-country region edged up from 0.3% in September to 0.4% in October, in line with the consensus."

"The small increase was fully driven by a further pick-up in the food, alcohol and tobacco component (from 0.3% to 0.5%), and less negative energy price inflation (-1.8% vs -2.3%)."

"Core inflation, by contrast, slipped, from 0.8% to 0.7%, bringing it back at the lows seen earlier this year."

"Given the recent, sharp drop in commodity prices, we do not expect the food and energy component to provide further upward pressure to the headline rate in coming months – if anything, renewed downward pressure may be in the pipeline. And with core inflation also set to stay low, we remain comfortable with the view that headline inflation will not reach 1% before Q4 next year (if at all)."

"Against this backdrop and with Eurozone economic growth lacklustre, the ECB will likely remain under pressure to do more to steer inflation back to their target."

"However, we expect the ECB to wait at least until the December meeting before possibly deciding on new action, as it gauges the effect of existing stimulus measures. We are increasingly inclined to think that the ECB, before resorting to large scale purchases of national sovereign bonds, will first exhaust other alternatives, such as extending the current purchases programmes by adding corporate bonds and perhaps supranational bonds."