Is Clarity on the Horizon? We expect the NSA levels of core and headline HICP to come in at 120.99 and 128.00 in March, respectively. Based on our projections, the YoY is expected to be 2.43% for core HICP and 2.15% for headline HICP in March. Figure 1 illustrates our MoM forecast errors for NSA data across both core and headline HICP. Over the past few months, the standard error and standard deviation of our MoM forecasts have been 4bps (5bps) and 9bps (13bps) for core and headline HICP, respectively. The March reading is unlikely to provide clear insights into whether and when core inflation will reach the 2% target—unless we see a significant downside surprise. Risks remain skewed to the upside, as retaliatory measures against US tariffs might/will be put in place.
Medium-Term Models Little Changed. Assuming our forecast holds, our medium-term models remain unchanged, as the Q1 model forecast (2.4% QoQ saar) would be validated by the data. The medium-term model forecast remains a bit above the ECB/NCBs staff forecast.
ECB Outlook: Big Picture Unchanged. From the ECB’s perspective, the broader picture remains intact. While our model does not indicate certainty in hitting the target over the medium term, we believe their risk assessment has evolved, with an increasing focus on growth.
Figure 1. Underlying Inflation MoM forecast errors (on NSA data).
Our forecast
Unlikely to bring clarity. We expect the NSA levels of core and headline HICP to come in at 120.99 and 128.00, respectively, for March. Our forecast assumes an NSA level of 114.80 for NEIGs and 124.60 for services. The NSA “unchained” levels by year for NEIGs and core services can be found here and here.
Our projections suggest little deceleration for HICP services in NSA terms. We anticipate an NSA MoM growth rate of 97bps for core HICP and 58bps for headline HICP. In seasonally adjusted terms, core HICP is expected to rise by approximately 20bps MoM. We perceive the risks to be a bit to the downside.
Our estimates imply YoY growth of 2.43% for core HICP and 2.15% for headline HICP. That said, as always, we do not place too much weight on sector-specific readings and will wait for the final distributions.
Overall, the March HICP report is unlikely to provide clarity on whether—and when—core inflation will reach the target, unless there is a significant downside surprise.
Figure 2. NSA “unchained” core HICP level by year (1 = new year’s eve)
Note: The “unchained” index of core HICP is shown in Figure 2 (for a discussion about “unchained” HICP see here and here).
Implications for the “main” model
Implications for the medium-term model-based forecast of core HICP price inflation. Assuming our MoM forecast holds, model-based projections for core HICP inflation would be little changed as the incoming data would alter our Q1 nowcast only marginally (2.4% QoQ saar). Projections based on the unemployment rate (average YoY) indicate: 2.5% in 2025, 2.3% in 2026, and 2.1 in 2027. Meanwhile, forecasts using the output gap indicate: 2.5% in 2025, 2.2% in 2026, and 2.2% 2027.
Note: this forecast doesn’t include the impact of tariffs yet—we’re waiting to see how strong the retaliatory actions will be.
On average, these projections are a bit above the most recent ECB/NCBs staff forecast.
Figure 2. Model-based medium-term forecast of core HICP (YoY)
Using Urate as a measure of “slack”
Using output gap as a measure of “slack”
