Goldman Sachs Sees Inflation Picking Up In Europe - SPDR S&P 500 (ARCA:SPY)

In the Macro Rates Monitor out Tuesday morning, Goldman Sachs analyst Francesco Garzarelli stated that his core view on euro-area inflation is higher than consensus. Mr. Garzarelli made several key points regarding his view:

Based on our forecasts for a rebound in oil prices from 2015H2 onwards and a continuing weakening of the Euro/$, we find that energy prices should start contributing positively to headline inflation as soon as next year.
As a result, we calculate that inflation swaps are implicitly pricing a very low `core' inflation outlook (relative to our own forecasts) until 2018.
We believe markets have been too focused on the negative impact of oil prices on near-term inflation while largely dismissing its delayed positive effect on prices coming from the boost in households' disposable income.
Purchases of linkers on the ECB QE programme should lift breakeven inflation and should also lift inflation swaps.

In the note, several key U.S. inflation data points for the week ahead were noted.

Tuesday: Empire State manufacturing survey
Wednesday: January industrial production, the release of the Minutes from the Jan 27-28 FOMC meeting
Friday: February ‘flash' manufacturing PMI

Goldman Sachs expects ‘core' inflation to hover around current values for the next two quarters and then start to drift higher from 2015 H2 onward, reaching 1.1% by the end of next year.

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