Inflation worries will ease in time

Last week’s major euro-zone data releases will have done nothing to ease the ECB’s fears about inflation. March’s rise in headline CPI inflation will be particularly worrying, given that it may have been down to a pick-up in the core component. But even if core inflation is beginning to rise, this is not necessarily as worrying as it may seem. After all, it may partly reflect a rise in the price of goods and services, such as restaurant prices, whose costs are heavily influenced by food and energy and are perhaps not a sign of broader “second-round” inflation effects. What’s more, with euro-zone labour cost growth still very subdued, we still think that inflation will fall back below 2% next year.