Archive

July 01, 2025
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EA: Calm At The Inflation Target

  • An unsurprising achievement of the 2% target might urge a celebration at the ECB, but it does not demand policy action. Energy price declines can’t be relied upon to repeat.
  • The early consensus forecast was surprised on the upside, but raised by last week’s releases in France and Spain. So, while reassuring, this outcome is not dovish.
  • We expect inflation to stay close to the target, whereas the ECB forecasts a substantial drop below it, while calling policy well-positioned. We still see no more rate cuts.

By Philip Rush

June 25, 2025
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Defence Spending Is Not Stimulative

  • NATO raised its target for defence spending to 5% of GDP, with Spain opting out. This increases pressure for tighter monetary conditions than were otherwise appropriate.
  • Defence spending offers weak growth multipliers, so the policy is more likely to stoke deficits than productivity. Central banks may respond with a more hawkish stance.
  • With debt levels already high, the move risks crowding out other spending and lifting sovereign risk premiums. Bond yields suffer from higher deficits and future rates.

By Philip Rush

June 23, 2025
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Growth Broadly Back In The Black

  • PMI recoveries extended in June, taking averages above 50 as manufacturing is its strongest since Sep-22, and services almost align with its averages of recent years.
  • The UK survey balances suffered from bad vibes, so they are the primary beneficiary of sentiment improving. Their recovery can extend further as vibes improve.
  • Broad expansion helps labour demand to keep pace with supply, denying doves proof of a disinflationary demand shock. Without that, cuts roll later and may not resume.

By Philip Rush

June 18, 2025
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EA Inflation Predictably Near The Target

  • Disinflationary news from May’s flash inflation release was confirmed in the final print, although a rebound in some underlying inflation measures damped the initial signal.
  • Resurgent oil prices could rapidly reverse the dovish space expanded by past falls. Our forecast bumps around the target through 2026 and 2027, settling at 2%.
  • Other forecasts are a little lower and only suffer a slight bias to be exceeded. The ECB can remain reassured by an outlook close to 2% without cuts, and not deliver any more.

By Philip Rush

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