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Will inflation be back in the eurozone in 2017?


The essential

Besides headline inflation, whose recent volatility is mostly due to oil prices basis effects, core inflation remains weak in the eurozone, where, at the same time, we note a significant decline in the disinflationary pressures that have emerged in recent years.

In light of business cycle indicators, a pickup in core inflation is not very likely in 2017 but chances look better in 2018 or 2019. In Germany, however, the situation is different. There, labour market conditions point to the emergence of inflationary pressures (which should, however, remain moderate) starting this year.

CROSS ASSET (Download)

February 2017


Février 2017


The Article



The spillover of energy price fluctuations to other sectors and currency effects could have contradictory effects on core inflation in 2017

Fluctuations in energy prices, while not directly reflected in the core index, do usually spill over into the other sectors of the economy with some delay. The recovery of oil prices since Q1 2016 may therefore exert slight upward pressure in 2017. Similarly, inflation expectations (as measured in surveys and market instruments) were, in recent quarters, mostly aligned with headline inflation and therefore the base effects of energy prices. Although logically they should be expected to gradually ease starting in Q2, it will probably not occur without slightly contaminating core inflation, including through wages.

Lastly, the currency fluctuations seen in 2016 could also leave their mark. While it is true that the euro has slightly fallen against the dollar recently, its effective exchange rate continued to rise over the past four quarters due to its appreciation relative to emerging currencies and, to a greater extent, the GBP. Because of the delay in the spillover of these currency movements to prices, their impact on inflation in the eurozone in 2017 will probably be neutral to slightly negative (provided there are no further broad movements on the foreign exchange market).


PERRIER Tristan , Senior Economist
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