Underlying inflation is not yet sustainably back to target in the eurozone - Fitch

The divergence in headline and core inflation will create communication challenges for the ECB, though it will not lead to changes in the ECB's asset purchase program, according to a new analysis by Fitch Ratings. 

Key quotes

"Inflation in the eurozone was significantly below the ECB's target of "below but close to 2%" for more than four years before surging to 1.8% in January 2017 and 2.0% in February. This surge in inflation is predominantly due to temporary, one-off shocks to more volatile items, particularly oil and unprocessed-food prices. "We forecast headline HICP to decline after 1Q17 and remain below the ECB's target until the end of 2018," said Gergely Kiss, Director in Fitch's Economics team."

"We expect the ECB to follow through on last December's forward guidance of continuing its asset purchase programme through the rest of this year, then scaling down purchases in early 2018 before ceasing them by the middle of the year. "At the same time, the ECB will likely face communication challenges to explain its monetary easing policy. In particular, it may find it increasingly difficult to justify the extended period of large-scale asset purchases to the German public," aid Gergely Kiss, Director in Fitch's Economics team."