Eurozone: Immediate drag on inflation ABN Amro

Headline inflation will turn negative while core inflation is set to gradually decline, according to economists at ABN Amro.

Key quotes

“The macro stimulus measures are likely to only partially offset the shock to demand, and we judge that spare capacity will build in coming quarters, which will bear down on underlying inflationary pressures. The collapse in oil prices will be an immediate drag on inflation.”

“In the second quarter, we think HICP inflation will register negative numbers on a year-over-year basis. Assuming some recovery in oil prices later in the year, headline inflation should bounce back sharply towards 2% by mid-2021.”

“Given the weakness in demand, we expect core inflation to fall to just 0.6% by the end of next year from around 1.2% now. As a comparison, core inflation fell by around a percentage point following the global financial crisis.”