Heteronomics Archive

May 17, 2024

EA Inflation Eases ECB Cut in June

The final EA HICP inflation print confirmed the unsurprising stability at 2.4% in the April flash release. Energy price base effects will probably push it higher again in May.
Underlying inflationary pressures have continued falling, with most statistical measures under 3% y-o-y with monthly impulses at or slightly below the ECB’s target.
Like the consensus, we expect inflation to stay close to 2%. This outlook and subdued underlying pressures will likely ease the ECB’s decision to start cutting rates in June.

By Philip Rush

May 16, 2024

Rate cuts are rare outside of recessionary regimes. The 1998 experience seems a more similar historical example for the BoE than 1989 or 2005, when its policy diverged.
CPI inflation will probably be less benign because wage growth is much higher, so sterling may not stay as stable. The speed of possible policy reversal would be critical.
Loosening monetary conditions when the real economy doesn’t need it risks stimulating a financial bubble. Carefully hedged investments would help avoid the eventual bust.

By Philip Rush

May 15, 2024

Eurostat's second estimate confirmed the EA’s 0.3% q-o-q rebound out of technical recession. That fully recovers the H2 fall, although it was partial for Germany.
Employment growth matched GDP in Q1, extending the persistently poor productivity performance. Eastern Europe’s structural catch-up is a relatively small bright spot.
Jobs-intensive growth is keeping unemployment at its lows even as it rises elsewhere. EA potential looks relatively impaired rather than facing tighter monetary conditions.

By Philip Rush

May 14, 2024

UK unemployment increased again to 4.3% in March, as expected. The Q1 deterioration still looks spurious, like the preceding strength, but the extent of change is slowing.
Vacancies are falling, but so are redundancies. Incumbent workers enjoy high pay increases despite reduced demand for new workers amid broadly high expectations.
Average earnings surged beyond expectations again. The absence of progress in pay settlements prevents slowing to a target-consistent pace, but the BoE seems unfazed.

By Philip Rush