Archive

HEM: Rolling Precariously

• Data are resilient, but markets doubt the policy effect
• Rising unemployment would signal a need for rate cuts
• UK wage settlements support a high floor in inflation
• Excess demand and inflation delay BoE cuts to Feb-25
• The Fed and ECB may only delay to Sep-24

EA Services Don’t Dis-inflate for Doves

• EA inflation reversed its previous upside surprise to print down at 2.44% in March. Core inflation was 2bps softer at 2.946% amid non-energy industrial goods price weakness.
• Services inflation once again surprised on the upside by refusing to budge from 4% for the fifth consecutive month despite potential Olympic-related weakness in France.
• The ECB can welcome headline disinflation, but without seeing a slowing in services inflation, we still believe it will not be convinced to start cutting interest rates.

By Philip Rush

EA: HICP Converging Close to 2%

• In the final print, headline EA inflation was confirmed as slowing by 0.2pp to 2.6%. The 0.1pp of upside from the flash was genuine and even worse in services.
• January’s divergence in the underlying inflationary impulse was resolved with clustering nearer 2%, potentially consistent with a sustainable return to the inflation target.
• Lower energy costs may flatter the picture, while strong services inflation suggests wage growth remains too high. We still see the ECB’s first cut rolling to September.

By Philip Rush

ECB Calmly Awaits News

• The ECB unanimously maintained its policy rates and did not even discuss cuts despite this meeting being dovishly priced as starting a cutting cycle until recently.
• April is effectively ruled out, barring a crisis, with weakening wages needed to justify a June start. Resilient services inflation may mean wage costs are not benign enough.
• Although we believe the ECB expects to cut in June, we still expect resilience to delay that first move to September. A high neutral rate would also limit and slow cuts.

By Philip Rush