Archive

December 18, 2024
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UK Inflation Extends Broad Rebound

  • UK inflation matched expectations by increasing to its highest headline pace since March, although this doubled the BoE’s forecast error to 0.2pp (0.1pp in services).
  • Only one division contributed much less to the monthly impulse than last year, with the median rate remaining excessive at 3% amid broadly high unit labour cost rises.
  • An early December index date will likely be used, weighing on airfares in the short term. Our forecast still gaps higher than others in 2025 despite the consensus rising.

By Philip Rush

November 29, 2024
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ECB Gradualism Secured By Reflation

  • Euro area inflation increased by another 0.3pp in November to 2.3% y-o-y. Headline surprises were small and balanced, but the resilience doesn’t fit dovish pricing.
  • Core and services price inflation rates were little changed at above-target levels. They will likely rise again in December and stay too high throughout 2025.
  • The ECB believes policy is tight and demand is too weak, allowing it to cut again in December. Gradualism is required to avoid over-easing amid ongoing data resilience.

By Philip Rush

November 21, 2024
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EA Wages Are Too Inflationary For 50bp

  • Upwards revisions to Euro area labour costs and a jump in negotiated wage settlements extend cost growth inconsistent with a sustainable return to the 2% inflation target.
  • The ECB hopes this will subside swiftly in 2025, with productivity growth and squeezed profit margins helping contain inflation. But these hopes seem set to be disappointed.
  • Persistent wage pressures should prevent a 50bp rate cut in December and limit further cuts. Less dovish fundamentals feed bullish Euro seasonality, magnified by positioning.

By Philip Rush

November 20, 2024
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UK Inflation Flies Cuts To 2025

  • A surprising airfare rebound extended CPI inflation’s energised rise to 2.3%. Its higher weighting in core and services measures compounded the upside surprise there.
  • Underlying inflation also strengthened on other measures, like the median, and looks inconsistent with a sustainable return to the inflation target.
  • We still expect inflation to trend above the target in 2025 on excessive unit labour cost pressures. The BoE can remain gradual in its easing cycle, skipping a cut in December.

By Philip Rush

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