Coronavirus Watch: Don’t sweat January’s CPI jump

Eurozone core inflation increased sharply in January due to a surge in prices for both services and goods, which fits with the narrative of a pandemic-driven inflation double whammy. Domestic restrictions are increasing services prices, while a jump in demand for goods and higher container shipping costs are prompting retailers to hike their prices.

But while the headline inflation numbers seem to fit that scary inflation narrative quite nicely, a closer look at the detail suggests that’s not the story the facts are telling. Transient and more mundane forces such as late January sales are likely to be behind much of January’s eurozone inflation moves.

We expect eurozone other economies’ core inflation to rise from late 2020’s ultra-low rates, but last year’s global recession should keep underlying inflation pressures fairly well contained. Core inflation is unlikely to significantly exceed the rates seen prior to the pandemic anytime soon on a sustained basis, making an imminent policy rethink by central banks unlikely

Topics: Coronavirus