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EUROPEAN DATA WRAP: EZ CPI inputs continue to cool, though Food & Services remain areas of concern

Analysis details (15:00)

Top-line Prelim. May EZ Inflation inputs

Overall, the metrics are on the dovish side with as-expected influence from energy and related components. However, while the available core measures have all eased from prior levels, the Food and Service related metrics remain elevated and thus continue to pose a concern for the ECB.

In terms of ECB policy, the implications are somewhat limited in the near-term as a hike at the June 15th meeting is more than fully priced in by markets currently and we await the May EZ-wide Flash figure on June 1st; a release which is likely to be negatively-biased vs consensus given the data thus far with over 70% of the region's metrics now available. Further out, if the cooling trend continues and is seen in the June EZ-wide inflation print on June 30th, then it may exert some dovish-pressure on expectations for the July meeting; currently, pricing implies around a 50% chance of a 25bp hike, assuming the same magnitude is delivered in June.

Additionally, it is worth factoring in the growth narrative not being quite as resilient as first thought (i.e. German GDP), which serves as a supporting factor for those highlighting the possibility of a policy mistake via overtightening.

German Prelim. CPI, May

Overall, the release chimed with the earlier regional reports and came in cooler-than-expected and markedly down from the prior month for both the headline and harmonised prints. While the trend is welcome, key internals remain elevated and the marked and slight respective easing in the Energy and Service components can be attributed to fiscal activity.

German CPI Prelim YY (May) 6.1% vs. Exp. 6.5% (Prev. 7.2%); MM -0.1% vs. Exp. 0.2% (Prev. 0.4%)

Easing in inflationary pressures was broad-based in Germany with the exception of the Rental measure which remained at 2.0%. Notably for the ECB, the Food and Services related measures fell from the prior; however, the Food metric continues to show “above-average growth” at 14.9% and the Services easing is, according to Destatis, likely due in part to the German rail ticket. Reminder, the May PMI mentioned that “the rate of inflation in average prices charged for goods and services ticked up for the first time in four months”, a gauge that will be watched in upcoming releases and when assessing how much impact fiscal intervention is having. Particularly when, as ING writes, the headline is potentially biased upward by “the reversal of last year’s negative base effects from the energy relief package for the summer months…”.

French & Italian Prelim. CPI, May

Overall, the metrics add to the cooling in inflation pressures displayed in the Spanish print earlier in the week and thus are a welcome sign for the ECB, particularly the doves. However, the Italian figures were above-forecast and the core only eased incrementally.

French CPI Prelim YY NSA (May) 5.1% vs. Exp. 5.5% (Prev. 5.9%); MM -0.1% vs. Exp. 0.3% (Prev. 0.6%)

Italian Consumer Price Prelim YY (May) 7.6% vs. Exp. 7.4% (Prev. 8.2%); Core (ex-food/energy) 6.1% (prev. 6.2%); MM +0.3% vs. Exp. -0.3% (Prev. 0.9%)

In France the easing of inflation pressures was seen across the board, with the HICP also following suit and dropping by almost a full point. The breakdown saw marked moderations in Energy, as you would expect, with all components easing except for tobacco. Though, on a more cautious note, Services was only incrementally lower than the prior and the in-focus Food components came in lower but remain markedly elevated.

For Italy, the picture is very similar with Istat attributing much of the slowdown in the headline to non-regulated energy products. However, and as-above a concern for policy makers, upward contributions were seen from Unprocessed Food and Services relating to Housing on the inflation rate; metrics which lifted to 8.9% (prev. 8.4%) and 3.4% (prev. 3.2%) respectively.

31 May 2023 - 15:00- Research Sheet- Source: Newsquawk