MARKET MOVER - BNP PARIBAS - Investment Services India

Global Inflation Watch
First Flash Estimates for Sept. Out Next Week
Chart 1: Oil and Energy Price Forecasts
The key releases of the week will come from the
eurozone, where several national statistics offices will
release flash estimates of September HICP and CPI
inflation. The eurozone flash HICP is out next Friday.
We saw a jump in headline rates across the
eurozone in August, as the lagged effects of oil price
rises fed through to fuel price indices and boosted
headline inflation rates. Although further upward price
pressure from energy is unlikely this month, price
falls are also unlikely, so annual energy inflation
should be flat on the month for much of the region.
Our forecast for oil prices assumes little movement in
either direction over the remainder of the year. This
should mean that energy inflation in the eurozone
continues to moderate. In the first quarter of 2013,
we should see the pace of moderation pick up on
base effects. Our current forecast suggests that by
April 2013, energy price inflation in the eurozone will
have fallen to 3% y/y (Chart 1).
In terms of core price inflation in September, Italy and
Spain will be mirror images of each other (Chart 2), as
Italy’s 1pp VAT increase of last year washes out of the
annual inflation rates and Spain’s new, higher VAT
rates become effective. Spain’s VAT increase of 3pp
on the standard rate (from 18% to 21%) is much larger
than Italy’s increase last year (from 20% to 21%), so
the boost to the Spanish indices this month should
dwarf the falls in Italian inflation. However, at the
eurozone level, Spain is a smaller fraction of the
eurozone aggregate than Italy, so these tax effects
should broadly offset each other at the eurozone level.
The squeeze on the Spanish consumer is set to
continue: the Spanish government announced this
week that electricity tariffs would rise 10% from
January 2013. We think this will add 0.5pp to energy
price inflation in Spain in January, equivalent to
0.06pp on headline HICP inflation. The impact on
eurozone headline inflation will be minimal.
The preliminary estimate of Belgian inflation in
September will also be released next week. In a sign
that weak domestic demand is depressing prices, car
manufacturers have recently been offering heavy
discounts. We think core inflation as a whole will
moderate this month, contributing to a moderation in
the headline rate from 2.9% y/y to 2.6%.
Source: Reuters EcoWin Pro, BNP Paribas
Chart 2: Core Inflation in Italy and Spain
Source: Reuters EcoWin Pro, BNP Paribas
Source: Reuters EcoWin Pro
Chart 3: Inflation in Belgium
Catherine Colebrook 20 September 2012
Market Mover
32
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