Euro area: taking stock of the inflation outlook

The sharp correction in the oil price seen since the end of last year and the weakening in the economic momentum will also have a dampening impact on euro area inflation. We have consequently revised down our inflation forecast to 1.5% this year after 1.8% previously and 1.6% after 1.7% for 2020 . We still, however, expect a (very gradual) increase in core inflation during the course of the year. For one, our commodity team expects the oil price to rebound from its current levels. More importantly, we see the current economic weakness as temporary and growth to re accelerate again in the second quarter. We therefore also believe that rising wage s will eventually exert an upward pressure on core inflation. The biggest risk to our outlook at this stage is clearly that the currently slowdown does not prove to be temporary , but the beginning of a more severe deterioration of the euro area economy.