MARKET MOVER - BNP PARIBAS - Investment Services India

Global Inflation Watch
Eurozone: September HICP Under Focus
Chart 1: German CoL
The figures for the German States, due for release
from Tuesday, and the flash estimate for the
eurozone out on Thursday will provide the first hints
on inflation dynamics in September.
In both cases, following a moderation in August, we
expect energy prices to push the inflation rate higher
over the month together with food. Conversely, core
inflation is forecast to remain broadly stable as some
upward pressures in prices of consumer goods is
offset by subdued dynamics in services.
More specifically in the eurozone, the 1.3% m/m
decline in eurozone energy prices last September will
not be repeated this month, mechanically pushing
energy inflation higher to around 8% y/y, from 6% in
August.
Source: Reuters EcoWin Pro, BNP Paribas
Chart 2: Eurozone HICP
Food inflation should also rise further on the month.
The boost from food price base effects is now past,
but we should increasingly begin to see pass-through
from the recent soft commodity price shock to food
prices in the coming months.
Core inflation, meanwhile, should remain flat for a
second consecutive month at 1.0% y/y. Core inflation
has recovered a little since April’s 0.77% record low,
with both core goods and core services contributing
to the rise. We see scope for core goods inflation to
rise a little further – in part, its strength reflects passthrough
of past euro weakness. But core services
should resume its downward trend given the weak
state of consumer demand and an absence of any
pressure from labour costs. Net, we expect core
inflation to trade flat in September.
Overall, the rise in food and energy will help drive a
rebound in headline inflation to 1.8% y/y, its highest
level since the end of 2008 (ex-tobacco index at
109.79).
Source: Reuters EcoWin Pro, BNP Paribas
Chart 3: GSCI vs. Eurozone Food Alchool and
Tobacco (FAT) Index
Looking beyond August, headline inflation is likely to
trend slightly higher over the remainder of the year,
as some stabilisation in core inflation is combined
with higher inflation in the most volatile components
of the index (Chart 3).
Source: Reuters EcoWin Pro, BNP Paribas
Luigi Speranza/Eoin O’Callaghan 23 September 2010
Market Mover
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