Archive

EA Inflation Stable Enough for the ECB

• The final EA inflation print confirmed the flash at 2.52% in June, with services refusing to slow from 4.1%. Median inflation rates broadly rebounded, stabilising the 3mma.
• Divergences between member states’ underlying pressures are balancing slightly above a target-consistent pace. The ECB is unlikely to be concerned about that.
• Stability in the ECB’s medium-term forecast seems sufficient for it to cut again in September. Tight labour markets may yet renew pressures and pause cuts later.

By Philip Rush

UK Discounts Soften Stronger Services

• UK inflation was broadly unchanged and close to expectations in June, although resilient services price strength was offset by temporary weakness in goods again.
• Seasonal goods discounting is unsustainable disinflation. Underlying pressures remain too high, and their persistence keeps raising consensus forecasts.
• An August BoE rate cut remains most likely, albeit less than before. It can point to the headline rate matching its forecast and lean on its expectation that things will improve.

By Philip Rush

US CPI Inflation 2.97% y-o-y (consensus 3.1%) in Jun-24

- US CPI inflation for June 2024, at 2.97% y-o-y, is below the consensus and demonstrates successfully moderating inflationary pressures.
- Core inflation is higher, at 3.3%, but the monthly impulse reassuringly slowed to 0.1%. Mixed PPI trends indicate some price pressures persist, but the Fed is increasingly likely to cut in September.

UK Inflation Basket Case

• Expected core inflation is more policy-relevant than the current pace. Service price inflation is a suboptimal signal for predicting medium-term inflationary pressures.
• Median inflation is typically the best single measure for prediction, but many options exist. Baskets built from multiple statistical measures are consistently better signals.
• The most potent underlying statistical measures are stuck above a target-consistent pace, and wage settlements worryingly still signal excessive fundamental pressure.

By Philip Rush