Inflation in the euro area accelerated above consensus expectations in April. The headline inflation rose to 1.9 percent year-on-year from 1.5 percent recorded in the prior month. Consensus expectations were for the inflation to rise to 1.8 percent. Core inflation was the main driver that rose to 1.2 percent year-on-year from 0.8 percent. Core inflation also came in above the consensus expectations of 1 percent.
Services prices recorded the most robust rise since December 2012. Service price inflation had declined strongly on a year-on-year basis in March because of early Easter holidays last year and has rebounded by even more. However, a part of the rebound might be transitory. Energy prices added 0.7 percentage points to inflation in April. The rise in prices of non-energy industrial good stayed at 0.3 percent.
However, the headline and core inflation rates might decelerate in May. The headline inflation rate is expected to hover around 1.75 percent, according to a Nordea Bank research report. If oil prices remain broadly stable, the contribution from energy would be stable initially before declining towards the end of 2017. If core inflation does not accelerate by then, inflation might fall below 1.5 percent, noted Nordea Bank.
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