Archive

EA: Unsatisfying disinflationary snack

• Slower food price inflation nibbled the EA rate down to 2.1% in October, while services increased to their fastest pace since April. Labour costs are still rising too fast.
• Underlying inflation metrics are broadly a bit beyond target, risking a slight overshoot in the medium term, but the median impulse is reassuring, weighed down by France.
• Energy prices are set to bump inflation around the target in 2026, averaging above the consensus in our view. The ECB would need tightness elsewhere to shift rates, though.

By Philip Rush

HEM: Nov-25 Views & Challenges

• Pushback by Powell and peers trimmed some excessively dovish pricing, but the BoE converged down on poor data.
• The BoE should also resist pressure as underlying issues are unbroken by relatively marginal recent payback.
• We now see markets overpricing easing most in the UK. More weakness is needed to signal a threatening trend.

ECB: Less Downside From The Good Place

• Downside activity risks have reduced, while the inflation outlook holds steady, keeping the ECB in its “good place” despite an implied shift up in the balance of risks.
• Upside risks while inflation is seen settling at 2% would imply a hawkish bias, which the ECB isn’t ready to convey. But the skew may have swung within insignificant margins.
• We still expect no more ECB rate cuts this cycle. If underlying inflation fails to slow as hoped, the ECB’s balanced bias could easily break into a hawkish one in 2026.

By Philip Rush

Credit For Inflation

• Credit and monetary holdings are booming in the UK, enabling consumers to spend their devalued pounds, supporting CPI inflation beyond the target.
• Falling rates have neutered the refinancing shock, facilitating the affordability of loan demand. Rapid ongoing wage growth further reduces the debt burden.
• The ECB also sees bullish monetary trends, but they only took it to a good place. The BoE is not in a good place, with policy accommodating above-target inflation pressures.

By Philip Rush