Archive

EA Services Don’t Dis-inflate for Doves

• EA inflation reversed its previous upside surprise to print down at 2.44% in March. Core inflation was 2bps softer at 2.946% amid non-energy industrial goods price weakness.
• Services inflation once again surprised on the upside by refusing to budge from 4% for the fifth consecutive month despite potential Olympic-related weakness in France.
• The ECB can welcome headline disinflation, but without seeing a slowing in services inflation, we still believe it will not be convinced to start cutting interest rates.

By Philip Rush

UK: Sticky Services Persist in Feb-24

• UK CPI inflation slowed 0.1pp further than expected to 3.4% in February amid soft goods prices, but services prices were strong again by only easing to 6.1%.
• Underlying inflation pressures remain sticky, with the median inflationary impulse stuck close to 3%. These data remain inconsistent with a sustainable return to the 2% target.
• Proximity to the target relies upon the temporary drag from falling energy prices and is not a reason to cut. Wage growth is too high, fuelling resilience that postpones cuts.

By Philip Rush

Canada CPI Inflation 2.78% y-o-y (consensus 3.1%) in Feb-24

- Canada's CPI inflation rate in February 2024 was 2.78% y-o-y, defying the consensus expectations for a rise to 3.1%.
- Underlying measures of inflation also slowed, indicating a relatively subdued inflationary environment.

EA: HICP Converging Close to 2%

• In the final print, headline EA inflation was confirmed as slowing by 0.2pp to 2.6%. The 0.1pp of upside from the flash was genuine and even worse in services.
• January’s divergence in the underlying inflationary impulse was resolved with clustering nearer 2%, potentially consistent with a sustainable return to the inflation target.
• Lower energy costs may flatter the picture, while strong services inflation suggests wage growth remains too high. We still see the ECB’s first cut rolling to September.

By Philip Rush