Update inflation model – The downward trend continues

Inflation is moving toward the ECB target

Our machine learning-based Quant model for inflation in the euro area (see here ) expects inflation to be slightly lower than previously forecast for the coming months. This means that inflation is likely to remain around the ECB's target of 2% until the end of the year. This is due to the continued low oil price, which is increasingly affecting inflation the longer the oil price weakness persists. Pressure on services prices is also likely to ease somewhat towards the end of the year (see DeepDive below.)

For our forecast, we typically supplement the purely data-driven quant model with additional assumptions. We have, however, significantly weakened the most important additional assumption, namely falling goods prices due to the diversion of Chinese goods to Europe, following the preliminary agreement between the US and China. For this reason, our forecast for the coming twelve months hardly differs from the pure data model.

For full text see attached PDF-Version.