Archive

March 03, 2025
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EA Inflation Drift And Skew Survives

  • Euro area inflation exceeded consensus expectations again in February, despite an ongoing drift up in forecasts, although the 2.4% outcome precisely matched our call.
  • ECB easing anticipated a drop below target by now, so its disappointment should exceed any relief at the 0.1pp slowing, driven by French energy bills, after four straight rises.
  • Wage inflation remains too fast to sustainably achieve the target, which should urge the ECB to slow its easing after cutting on 6 March. We still see June as the last rate cut.

By Philip Rush

February 25, 2025
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Euro Area Wage Growth Is Too Hot

  • Negotiated wages grew by 4.1% in Q4, slowing sharply from Q3, but little changed on the average from 2024 and 2023. It is not yet on an obvious path of improvement.
  • Broader labour costs have also slowed and are suggesting unit labour cost growth of around 4% y-o-y, although that would mark an abrupt rise in the quarterly pace.
  • Labour costs are growing too fast to be consistent with a sustainable return to the ECB’s inflation target. We expect its easing cycle to end in H1, much earlier than priced.

By Philip Rush

February 24, 2025
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EA Inflation Excess Persists In 2025

  • The final Euro area inflation print for January confirmed the headline rise to 2.52%, 0.1pp above flash forecasts and 0.4pp above the consensus prevailing in December.
  • Median inflation rates were at least more subdued than in the UK, but our persistence-weighted and latent trend estimates remain awkwardly high amid rapid wage growth.
  • Inflation should slow with French energy prices in February. Unfortunately, it seems set to stick above the target in 2025, discouraging ECB cuts from matching market pricing.

By Philip Rush

February 19, 2025
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UK Prices Surge Into 2025

  • UK CPI inflation jumped 0.2pp beyond expectations to 3% y-o-y in January amid broadly excessive price rises, to the extent that the median annualises at almost 6%.
  • Underlying pressures have been trending higher since easing began, and the headline rate is set to keep rising, albeit with little change before the BoE’s likely cut in May.
  • Demand growth keeps unemployment low, suggesting monetary conditions are too loose for tight cyclical pressures. We expect rate hikes in 2026 to reverse premature cuts.

By Philip Rush

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