EZ inflation to be very low by end of 2018? - Natixis

Analysts at Natixis explained that it is not hard to see inflation being very low at the end of 2018 in the eurozone.

Key Quotes:

"The financial markets and the ECB expect inflation to gradually rise in the eurozone. And yet:

• Unit labour costs, which determine core inflation, are not picking up and are increasing by less than 1% per year;
• Oil prices are unlikely to increase much further, which means that the additional (headline) inflation caused by the rise in oil prices will gradually disappear;
• The euro looks likelier to appreciate (given the capital inflows in the eurozone, the US external debt and the rise in the euro’s share in foreign-exchange reserves), leading to imported disinflation.

In a scenario where oil prices remained stable in 2018 and the euro appreciated to 1.30 against the dollar (which implies a decoupling of oil prices and the USD/EUR exchange rate), headline inflation would be lower than 1% at the end of 2018, which is well below the consensus."