European zone inflation weakened

The slowing of inflation in the Euro Zone could provide another reason for the European Central Bank (ECB) in making decisions related to the termination of its bond buying program.

Consumer price growth unexpectedly weakened to 1.2% last month and core inflation that excludes volatile goods like food, was the lowest for more than a year at 0.7% level. Both measures are below economists' forecasts.
The ECB and the European Commission each estimate an improvement later this year. However, attention remains on the continuation of weak data combined with the risks of trade protectionism that can undermine firm and household spending beliefs.
Aline Schuiling, an economist at ABN Amro, said the ECB would want to see up to several months ahead to assess the extent of the sharp drop in core inflation.
"If we stay at this low level, they might consider extending [bond] purchases," he said as quoted by Bloomberg on Thursday (03/05/2018).
Meanwhile, ECB chief economist Peter Praet in his speeches in Paris after the inflation report was released, reiterating the central bank's desire to wait while assessing whether this slowdown occurs in the short term or not.
"The latest economic data and survey results generally have a surprise for the decline, showing some lack of momentum in economic activity," he said.
He added that temporary factors may also play a role and the ECB also wants to monitor whether, or if, for how long, these developments could reflect weakness in the demand that can be tolerated.
The European Commission also remains optimistic in the revision of the economic outlook released on Thursday (3/5/2018), as they maintain inflation expectations unchanged. The European Commission sees this year's average price growth of 1.5% this year and 1.6% in 2019.