Low inflation rate expected in 2019, lower than core inflation

The price of oil is, on December 19, 20% below its 2018 average. The contribution of energy to the inflation rate will quickly be negative. Inflation will fall below 1% in the euro zone in 2019. (The energy price is the main source of fluctuations of the inflation rate. Sometimes on the upside sometimes on the downside. Currently it’s on the downside)

For a zero contribution to inflation, on average over 2019, the price of oil should increase by 25% It is only above this 25% increase, on average in 2019, that inflation will go above underlying inflation (close to 1%). No rush for the ECB to change its mind on monetary policy

Wages and the ECB monetary policy

Discussions on wage dynamics in the Euro Area. The momentum is now higher (2%) but not sufficient to push core inflation on the upside. The enigma is not solved yet. That’s the analysis of this NY Times article.

Nevertheless, the example comparing France and Germany in the article is not totally convincing. There is still a lot to understand on the labor market.

Workers may finally be getting a bigger piece of the economic pie — at least in Europe. Just don’t ask why, or whether it will last.

In the decade since the financial crisis, much of the global economy has recovered and is back on stable footing. Companies are reporting record profits, unemployment levels are plummeting and overall global growth is back on track.

Wages in most developed countries, however, have barely budged.

Read the article here. nyti.ms/2mI1Hnv

ECB, Inflation, the Fed, and Employment in France – My Monday column

Inflation figures at 1.1% in February do not trigger expectations of a fast and sharp change in the ECB’s monetary policy, and Mario Draghi and Peter Praet did not indicate that they were in any hurry to implement swift or sudden change in their comments at the end of last week.
The ECB’s monetary strategy is dependent on reaching inflation in line with its medium-term objectives: the 1.1% figure does not point in this direction.
ea-2018-february-inlation
The chart below shows the contribution from each of the three main sectors to the rise in inflation, and we can see that none of them display a marked uptrend. Continue reading