Eurozone: Strong increase in inflation and retail sales in December – ING

Bert Colijn, senior economist at ING, points out that Eurozone’s inflation rate has jumped on energy price effects as the oil price jumped in December and base effects played a role, headline inflation increased from 1 to 1.3%.

Key Quotes

“Depending on oil price developments- which are likely to be volatile as Middle East tensions have spiked recently- it is expected that inflation could trend somewhat higher than the 1% range for the coming months. The real story though is in core inflation, which has been at 1.3% for two months in a row now. This is higher than expected and could encourage hawks at the European Central Bank to seek some clawback of the monetary stimulus provided in the second half of last year.”

“November’s retail sales numbers may also give rise to some excitement, coming in higher-than-expected at 1% month-on-month growth. It's important to remember, however, that the rise of Black Friday across the eurozone will play an important role here.”

“While the higher core inflation reading will be on the ECB's radar, continued sluggish growth and subsiding wage pressures make a quick rise to the 1.5-2% range an upside risk scenario, rather than a base case.”