July 01, 2022
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EA: Inflation Trend Stays for Summer

  • EA inflation continued its trend with another 0.6pp rise to 8.64% in June-22. The surprise pressures are moving back from the core components to energy and food.
  • Despite the upside headline surprise, Germany undershot our already low forecast, but Spain was beyond even our distant high view. Other countries skew to the upside.
  • We now forecast a more substantial increase in July to 8.9%, extending the trend further into the summer. The ECB has already committed to responding.

By Philip Rush

July 01, 2022

HEW: Flash Rise a Highlight in the Void

  • Over the past week, EA inflation data were the highlight, rising like a hawk. A low core softened the upside news, but that’s little hindrance to the hawkish ECB. Separately, we tackled some fundamental misperceptions about how far policy might go.
  • Next week’s calendar manages the impressive feat of being even emptier than last, with final PMIs a dull focus. We will fill some of the void with our Heteronomics Economics Monthly and more thematic research.

By Philip Rush

June 30, 2022
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Un-Real Neutral Rate Views

  • Neutral rates still appear to have risen beyond reversing the covid-related crash. That makes policy more stimulative, pushing further tightening.
  • Adding inflation to “real” neutral estimates exaggerates the problem. Rates need not rise above inflation to lower it, as it is effective expectations that matter.
  • Mistaken fundamental views of neutrality encourage markets to price a possibility of spuriously high rates, contributing to excessive pricing (a probability-weighted mean).

By Philip Rush