Eurozone: Inflation cannot keep up with economic growth - Rabobank

Despite the positive economic backdrop, Eurozone’s inflation for October came in lower than expected as the headline slowed down 0.1%-points to 1.4% in September, but the core measure fell quite sharply to 0.9% from 1.1% the previous month, explains the research team at Rabobank.

Key Quotes

“It is the lowest core inflation rate since February this year (and only 0.3%-points above its "all time low" set in March 2015). A sharp drop in core services prices could point to transitory factors but it does not take away from the fact that even in Germany, where unemployment is at record lows and vacancy levels at record highs, there is still modest wage growth and hardly any underlying price pressure.”

“These data underscore the point that as long as a significant uptick in wage growth remains absent, core inflation is unlikely to reach the levels the ECB would deem "durable and self-sustaining". We have argued before that we see little reason to believe that wage growth will pick up strongly in the short term, as it is being held back by structural factors. And while positive, the fact that Eurozone unemployment has fallen to below 9% for the first time since early 2009 does not change that view.”