Archive

EA: May Be Disinflation’s Return

• Negative payback in services inflation dragged the headline EA rate down to 1.92% in the May flash. Although only 7bps low on the day, releases last week had cut 0.1pp.
• Inflation now looks set to spend a few months below the target rather than at or even above it, as had seemed likely until recently. This is not because of re-rooted imports.
• Euro appreciation and low energy prices have expanded the ECB’s room to cut rates, but we still see June as the final one amid tight labour markets and peers backing away.

By Philip Rush

HEM: Better Never Than Late

• Companies are smoothing out volatile trade policies
• Activity remains strong and labour markets are tight
• Underlying price and wage inflation is still too high
• Markets expect cuts to resume later, contrary to history
• The risk of rate hikes in 2026 is widely underappreciated

Underlying GDP Trends Unbroken

• Imports frontloaded before tariff rises seemingly disappeared in broadly unrevised US GDP data. Underperformance is exaggerated as an unwind, or revisions, are likely in Q2.
• Final domestic private sales maintained their rudely bullish US trend while drifting back towards stagnation in the EA and are distorted by residual seasonality in the UK.
• Superior US productivity trends preserve its structural attractiveness. Unemployment’s stability also suggests monetary conditions are near neutral, with easing unnecessary.

By Philip Rush

US vs EU: Crying ‘Wolf’?

• Ursula von der Leyen’s 25 May call with Donald Trump can be seen as a ‘win’ for the US President following his threat to impose 50% tariffs on the EU from 1 June. Alternatively, one could see his reversion as the latest manifestation of the TACO principle.

By Alastair Newton