EUROPEAN DATA WRAP: Spanish price pressures continue to cool while EZ lending tightens

Analysis details (15:00)

Spanish Flash CPI, May

• Overall, the release continues the underlying downward trend of recent Spanish inflation metrics. Albeit, the absolute levels are still elevated and it remains to be seen how much of this will filter into the EZ-wide figure and how lasting it will be.


• CPI YY Flash NSA (May) 3.2% exp. 3.5% (Prev. 4.1%); Core 6.1% (prev. 6.6%)


• HICP Flash YY (May) 2.9% vs. Exp. 3.4% (Prev. 3.8%); MM -0.2% vs. Exp. 0.2% (Prev. 0.5%)


• In the report, INE highlights that the developments are mainly due to the decrease in fuel prices when compared to the increase in May 2022 with support also seen, though of less influence, from the smaller increase in food/non-alcoholic price increases. The latter being a welcome development given the ECB’s focus on food inflation and in-fitting with recent remarks from Chief Economist Lane who looks for food inflation to reverse later this year.


• Most pertinently, the core metric continues to drop and is down to 6.1% from 6.6% and as such is now back in the 6.1-6.4% range experienced between July-November 2022. While this is all encouraging, both domestically and for the ECB, the key service-sector component for May is not yet known and recent EZ PMI data pointed to a resurgence in such price pressures in more timely releases.


• For the EZ, we get the Flash HICP metrics on Thursday 1st June, but before that the German Flash figures print on Wednesday, May 31st; Newsquawk primer for the EZ figure available here.

EZ M3 & Loans, April

• Overall, the metrics point to a reduction in lending activity as monetary conditions tighten. Though, this finding is not surprising given ECB action and it being the April release and thus subject to the influence of the banking crisis. For the ECB, the implications are dovish in theory, but mitigated by the reporting lag and it chiming with other surveys e.g. the BLS.


• Money-M3 Annual Growth (Apr) 1.9% vs. Exp. 2.1% (Prev. 2.5%)


• Loans to Non-Financials (Apr) 4.6% (Prev. 5.2%); Loans to Households (Apr) 2.5% (Prev. 2.9%)


• The data shows a continued decline in loans, a larger-than-expected decline in annual M3 growth and a particularly marked drop in the narrow-M1 figure, at a record -5.2% vs March’s -4.2%. A marked decline which is not unsurprising given the ECB's policy action and banking crisis which is incorporated into the survey period and more broadly is a continuation of the trend which has been in place for circa 12-months.


• While the data is, on face value, a ‘win’ for the ECB’s doves it is unlikely to move the dial on its own. Given it is a continuation of the embedded trend, mitigated by the reporting lag and already acknowledged by the April Euro Area Bank Lending Survey (released May 2nd) and as such was accounted for by the ECB at the May 4th gathering; a meeting where they hiked by 25bp and Lagarde made clear they are not pausing.

30 May 2023 - 15:00- Fixed IncomeData- Source: Newsquawk