The final HCIP for December confirmed the 1.4 percent yearly rate posted in the flash report. This was a tick short of its final November mark and reflected a 0.4 percent monthly gain in prices that followed a 0.1 percent increase in mid-quarter.
More significantly for ECB policymakers, the two main core rates continued to indicate no rise in underlying inflation pressures. The narrowest measure, which excludes energy, food, alcohol and tobacco, was unrevised at a 0.9 percent annual rate, matching its November print. This was 0.3 percentage points below its recent July/August peak and its third consecutive month at this level. The rate for the HICP omitting only energy and unprocessed food weighed in at 1.1 percent, also unchanged from October/November and a couple of ticks down on July/August. By contrast, the third yardstick, which leaves out just energy and seasonal food, saw its rate edge a tick higher to 1.2 percent, although this too was still below its recent high (1.3 percent).
Over the year to December 2017, the annual HICP inflation rate climbed a modest 0.3 percentage points to 1.4 percent. However, the narrowest core gauge was only flat at 0.9 percent. Essentially, the headline acceleration was attributable the its volatile components, that is, energy, where the rate climbed from 2.6 percent to 3.0 percent and, in particular, food, alcohol and tobacco, which was up 0.9 percentage points at 2.1 percent. The strengthening recovery in the Eurozone real economy last year should mean that the conditions are in place to put increasing upside pressure on underlying prices in 2018.
However, until this is borne out in the actual data, the ECB will remain very accommodative. A premature monetary tightening that snuffs out any would-be pick-up in core prices would do the central bank's credibility no good at all.
The harmonised index of consumer prices (HICP) is a measure of consumer prices used to calculate inflation on a consistent basis across the European Union. Changes in the index provide an estimate of inflation, as targeted by the European Central Bank (ECB). Eurostat provides statistics for the EU and Eurozone aggregates, individual member states and for the major subsectors. Over the short-term, the central bank focusses on a number of core measures which seek to strip out the most volatile components and so give a much better guide to underlying developments. Amongst these, financial markets normally concentrate upon the narrowest gauge which excludes energy, food, alcohol and tobacco.
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