Archive

EA: De-energised Back To Target

• EA inflation slowed back to target at the end of 2025, reversing November’s upside news to strengthen the ECB’s “good place” caricature.
• Falling energy prices are driving an unsustainable disinflation, while service price inflation is stuck above 3%. Small and balanced EA surprises skew lower in big states.
• Base effects remain set to drive a drop below the target and reversal by May. A slightly below target 2026 is not dovish when underlying pressures are stronger.

By Philip Rush

HEM: Jan-26 Views & Challenges

• Hawkish cuts led markets to price less easing, or even hikes, but there was little change in BoE views.
• The MPC is split in the face of wage growth persistently above target-consistent levels but is bias to ease in May.
• Rising unemployment rates may aid the appropriateness of previous cuts if the neutral rate is less elevated.

ECB: Wishfully Rolling Disinflation

• Stronger wage and service price inflation have shrunk the Q1 target undershoot to only 0.1pp, removing the space that doves hoped might free the ECB to cut again.
• Spending over half the year on hold and in a “good place” creates an inertia that will be hard to break towards another cut. We still see the ECB’s easing cycle as over.
• Rolling the disinflationary trend back a year helps soften hawkish pressures, but losing this amid ongoing strength seems more likely to push the ECB into a hawkish direction.

By Philip Rush

EA: Eating A Disinflationary Revision

• Another downward food price revision cut HICP inflation back to 2.1% in November, but the effect was only 1.6bp, and services inflation was marginally stronger than before.
• Service prices are not converging on levels consistent with the ECB’s target, and many underlying metrics are too high. The median is a notable exception, broadly below 2%.
• The ECB’s “good place” assessment should be unaffected by any of this, nor the base effects driving things slightly below the target in January. It should sound neutral.

By Philip Rush