Eurozone: Inflation heading up but to stay below 2% – SocGen

By FXStreet Research Team at Societe Generale, suggests that on the back of base effects from oil prices in euro terms and assuming a recovery of Brent in euro terms, inflation should recover to average 0.6% in 2016.

Key Quotes

“In the medium term, inflation is likely to continue to recover and average 1.5% between 2017 and 2020. The expected recovery in both headline and core inflation assumes:

A recovery in global oil prices: Our commodity analysts foresee a gradual increase to $50/b by end 2016 and a flat profile at $55/b in 2017, leaving the annual average at €42.1/b (down from €51.7) in 2016 and €53/b (down from €60.3) in 2017. According to our commodity analysts, Brent prices should recover as inventories are likely to start decelerating in Q2 2016. Over the medium term, to fulfill the projected demand growth of 1.1 Mb/d each year, SG analysts believe that the high-cost deepwater offshore and Canadian oil sands will be necessary. Hence, a more meaningful price increase in Brent is anticipated in the medium term. Prices need to increase to $70-80/b at the 2020 horizon to incentivize these projects.

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Source:: FX Street