February 03, 2025

EA Inflation Protrudes Pressure In 2025
- Euro area inflation shockingly rose again in January by 0.1pp to 2.52% y-o-y. That only exceeded the latest expectations by 0.1pp but is 0.3pp above the previous consensus.
- Only food prices marginally undershot expectations. Services inflation was stickiest at 3.9%, still close to its late-2023 pace as pressures persist.
- Tight labour markets still suggest monetary conditions are relatively loose. Easing is no solution to structural problems. Market pricing looks inconsistent with the cyclical story.
By Philip Rush
January 17, 2025

Inflation Peak From Festive Germany
- The final Euro area inflation print for December confirmed the headline rise to 2.4%, albeit with energy contributing a bit more, offset by even less from food prices.
- Germany drove the rise amid much higher package holiday prices this year. Its median increase also remained too high, almost matching the UK's above 3% annualised.
- December still looks set to be the peak. Falls in the following two months may not be enough to regain the target as services inflation persists at uncomfortable heights.
By Philip Rush
January 15, 2025

UK Airfares Disinflate Before Christmas
- UK inflation slightly undershot our below consensus call as airfares were even softer than we assumed. The early index date missed the expensive festive period.
- Airfares distort core and services inflation even more, but 70% reliably unwinds in January. Meanwhile, the monthly median inflation impulse annualised above 3% again.
- The BoE ignores airfare distortions when convenient, with the lower outcomes fitting its bias to cut rates again in February. Excessive easing may need reversing in 2026.
By Philip Rush
January 15, 2025

US CPI Excess No Worse Than Peers
- Headline US inflation aligned with the consensus for December, although the core rate was marginally weaker, challenging the prevailing hawkish Fed narrative.
- Expectations have been repeatedly marked higher in recent months, with the outcome exceeding most previous vintages, except those made during Q2 2024.
- Persistently excessive inflation data threatens the Fed’s cutting cycle, although the US economy is not the hawkish outlier often assumed and embedded in market pricing.
By Philip Rush
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