Eurozone: Underlying inflation expected to increase further – Deutsche Bank

Analysts at Deutsche Bank point out that Draghi spoke in the early afternoon yesterday to the European Parliament in Brussels and said that “underlying inflation is expected to increase further over the coming months as the tightening labour market is pushing up wage growth” and also that “domestic price pressures are strengthening and broadening”. 

Key Quotes

“There was also plenty of excitement when Draghi said that he sees a “relatively vigorous” pickup in underlying inflation however this language was used in reference to ECB staff projections of a pickup in future underlying inflation offsetting slowing non-core components so it was a little misleading that this got all the initial attention.”

“Draghi also endorsed current market pricing with respect to forward guidance and downplayed any conditionality of an end of asset purchases by year end. DB broadly agrees with Draghi’s comment, and we expect core inflation to hit 1.3% by year-end and to average 1.5% next year, enough to justify our call for a September 2019 rate hike.”