Eurozone HICP For January Will Surprise Upward

On Wednesday, Eurostat will release the first estimate of Eurozone HICP (Harmonised Index of Consumer Prices) for January. According to the Bloomberg consensus, on a YoY basis, Eurozone HICP is expected to rebound by +0.6%e (v -0.3% in December). Regional surveys and my proxies suggest that the consensus is pessimistic.

Regional surveys pointed to a sharp rebound in major economies

Most of regional surveys were already released and showed that HICP rebounded sharply YoY in several areas:

Germany HICP YoY: +1.6% v -0.7% prior

Spain HICP YoY: +0.6% v -0.6% prior

France HICP YoY: +0.8% v 0.0% prior

As the Bundesbank predicted in mid-January, German HICP increased notably after the government phased out a temporary value-added taxes cut (implemented in July 2020), introduced a new emissions-pricing scheme and also raised the statutory minimum wage.

In the meantime, the rebound in French HICP was driven by a delay to the start of the winter sales. They started on January 20th this year, compared with January 8th in 2020. The effect should reverse in February with promotional sales extending further into the month than last year.

The drag from energy prices should ease

On a MoM basis, proxies suggest that Eurozone road fuel costs jumped in January, supported by higher oil prices and a carbon tax increase in Germany. As a result, on a YoY basis, the drag from energy prices should be lower than in December 2020.

An upward surprise is unlikely to put pressure on ECB to withdraw stimulus in the short term

Even if the Janaury HICP should rebound and come above estimates (probably rising by the most since February 2020), it is unlikely to put pressure on ECB to withdraw stimulus in the short term. Over the weekend, European Central Bank executive board member Isabel Schnabel said in an interview with Deutschlandfunk radio “the surprisingly high first estimates of German inflation in January were based on one-time effects“. She also added “these short-term developments shouldn’t be mistaken for a sustained increase in inflation“.

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