Euro area inflation hit the inflation target, but is everyone running at same pace?

Tomas Adam and Filip Novotný

A chapter in CNB Global Economic Outlook - January 2019, 2019, pp 12-16 from Czech National Bank, Research and Statistics Department

Abstract: Inflation in the euro area exceeded 2% in several months of last year due to higher growth in energy prices. However, core inflation remains at levels which are relatively muted by historical standards and which do not guarantee that the ECB's inflation target will be achieved after the current contribution of energy prices unwinds. The main reason for the subdued underlying inflation pressures is the prolonged period of low wage growth. The relationship between wage growth and core inflation still appears to hold across the euro area countries, so one can expect stronger inflation pressures to emerge in the euro area only after wage growth accelerates. As core inflation in the euro area is very persistent, it is unlikely that it will increase sharply and abruptly. Convergence of inflation rates close to 2% even after the contribution of energy prices fades out is being supported by the ECB. It ended its net asset purchase programme at the end of 2018, but its monetary policy stance remains highly accommodative.

Date: 2019
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