ECB's De Guindos emphasises importance of core CPI

The European Central Bank's second-highest ranking official said that the monetary authority needed to keep an eye on core inflation in order to gauge how far it needs to tighten policy.

The European Central Bank's second-highest ranking official said that the monetary authority needed to keep an eye on core inflation in order to gauge how far it needed to tighten policy.

Speaking at an event in Madrid, organised by Spanish financial daily Expansión and KPMG, Luis de Guindos, said: "The signal we have to keep following is the evolution of underlying inflation.

"This will tell us how inflation can evolve in coming months."

According to the central banker, the annual rate of increase in euro area annual inflation likely held above 10% in November with core prices near 5%.

Consensus was for data due out the next next day to show that the former remained at 10.6% in November and the latter at 5.0%.

Figures published earlier on Tuesday in Germany and Spain, had led economists to caution that a downside surprised was possible - likely even.

However, unlike the consensus, analysts at Nomura believed the peak in euro area inflation was not arrive until December, when the year-on-year increase in harmonised CPI for the euro area would peak at 11.2% and core CPI at 5.3%.

According to Nomura, the Bloomberg consensus at the time of writing their research report was for November euro area CPI to slow to 10.4%.

Nomura added: "We believe headline inflation will fall quickly, as a result of energy price deflation and base effects, whereas we expect core inflation to prove more persistent and take longer to return to the ECB’s 2% target."