Archive

EA: Food Prices Take Another Bite

• EA inflation printed lower than the flash again at 1.94%, also because of food prices, but the 1.6bp nibble out of the headline rate still isn’t fundamentally significant.
• Median inflation remains stuck below the target, offsetting the hawkish signal from other underlying statistical measures that better reflect the resilience of wage growth.
• The ECB can remain comfortable with its “good place” assessment until it sees more evidence of inflation persistence stoking the headline. We still see no more ECB cuts.

By Philip Rush

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