Market commentary by Danske Bank after the Eurozone CPI readings yesterday
- A decline in core inflation was widely expected due to the differing timing of Easter
- We think the ECB will see through this temporary inflation dip and focus on the trend in the underlying inflation pressures and whether core inflation rebounds above 1.0% in May
- This will also be crucial for whether the next change in the forward guidance will come in June (as markets expect) or July (as we expect)
- A temporary increase in headline inflation in the coming months is likely because of energy price inflation, but we expect the underlying price pressure to stay subdued going forward
Even if there is a minor rebound in the May figures, you'd have to expect the ECB to brush aside the lower inflation figures as transitory or owing to temporary factors. It's too late for them to back down from a change in forward guidance and ending QE now, so this will be the only card they are able to play when the June meeting comes.
