Is core inflation cyclical or acyclical?

Over the last few months, the trajectory of core inflation has tended to return to normal in the United States while stabilising just above 2%. At the same time, it has remained anchored around 1% in the Eurozone. So the question remains: is core inflation in the Eurozone structurally low? In order to explain this, we draw on studies from the Federal Reserve Bank of San Francisco and break the components of core inflation down into two categories: the cyclical and acyclical components. In this case, cyclicality is estimated by taking into account the Phillips curve for each core inflation component. As for the contributions of the two built indexes (cyclical and acyclical), the low level of core inflation in the Eurozone is the result of almost perfectly balanced forces, even though the weight of each components in inflation is very different (64% for the acyclical components, 36% for the cyclical components). In order to explain these developments, we look at these two sub-indexes in more detail. We show that 40% of the discount of the acyclical component stems from the transport services component, whose volatility has increased sharply in the last few years. On the other hand, the cyclical contribution seems to be on the road to a gradual recovery, and if nothing disrupts it before then, it should probably return to its long-term average by end-2020. All things considered, core inflation seems to be on an upward trajectory over the coming months, mainly through the rise in the cyclical component, which is relatively slow compared with the past, but constant.