Tuesday, 04 June, 2019
UBS on Euro CPI
UBS say that they expect Eurozone CPI to bounce back in June following the sharp drop in May.
Eurozone headline flash inflation came in at 1.2% y/y from 1.7% y/y, while core dropped 0.5% to 0.8% y/y. UBS says that they expect the drop in core inflation to be temporary due to the later timing of Easter and Pentecost this year resulted in a later pick-up in prices of seasonal items relative to last year. UBS see core CPI bouncing back up to 1.0% y/y in June “which is probably more representative of the underlying trend”.
“Overall, we still expect stronger wage growth to support general recovery in core inflation” UBS add, but acknowledge “increasing downside risks” to their inflation outlook amid “uncertain growth outlook”. UBS forecast 2019 CPI at 1.2% and 1.4% in 2020 and core CPI at 1.1% & 1.4% respectively.
UBS have also changed their ECB call and now expect first 20bp depo rate hike in Sep 2020 vs Mar 2020 previously, followed by a 2nd 20bp hike in Dec 2020.
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