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).