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Inflation prints remain contained

Wednesday, March 31, 2021

Euro area inflation as measured through the flash consumer price index (CPI) estimate showed a 1.3% year-on-year advance – slightly below the consensus estimate of a 1.4% advance. Price pressures came through in fuel costs which have seen a 200% increase in the oil price against this time last year, when prices collapsed as the pandemic started. This base effect in inflation popping in the short term is as expected but it is unlikely to persist beyond a few months, in our view. The European Central Bank (ECB) has stressed that it will continue to look through the modest inflation increases in the short term, viewing it as a temporary aberration rather than a medium-term move to a higher inflation threat level. Equities and bonds have been reacting slightly manically over the last few months on inflation expectations moving sharply higher and as long as these prints remain contained, it will help limit their collective neuroses.

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