PRIMER: Eurozone CPI metrics due to be released at 10:00BST/05:00EDT

Analysis details (08:27)

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  Expectations are for headline Y/Y flash CPI in August to fall to 5.1% from 5.3%, with the super-core metric seen moving lower to 5.3% from 5.5%. 


• The prior report saw the headline pullback from 5.5% to 5.3% amid a negative contribution from energy prices, whilst the super-core reading held steady “thanks to diverging developments between non-energy industrial goods and services inflation” as opined by ING. 


• For the upcoming release, analysts at Moody’s suggest that the decline in the headline will be prompted by food and core inflation, counteracting a potential increase in energy inflation given the runup in crude oil prices. Digging deeper into core inflationary pressures, analysts expect the reading to ultimately inch lower “as services inflation stabilizes and core goods inflation falls thanks to lower producer prices”. That said, the desk cautions that there is a risk “that services inflation may tick up, buoying overall core inflation”. 


• In terms of the regional releases we have seen so far, Spanish data saw Y/Y CPI in August rise to 2.6% from 2.3%, as expected, with the M/M change at 0.5% vs. Exp. 0.4% and a previous 0.2%. German Y/Y CPI ticked lower to 6.1% from 6.2% (Exp. 6.0%), whilst the core metric held steady at 5.5% Y/Y. France released the hottest report thus far with Y/Y CPI rising to 4.8% from 4.3% (vs. Exp. 4.6%) and M/M at 1.0% from 0.1% (vs. Exp. 0.8%). 


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  From a policy perspective, last week’s soft PMI metrics prompted a dovish repricing for the ECB’s September meeting with the decision subsequently seen as a coin flip between unchanged and a 25bps rate increase. Furthermore, subsequent source reporting revealed that momentum at the ECB is growing for a pause on hikes as recession fears increase. The report added that the debate is still open given inflation metrics are set to be released this week and any decision to pause would need to make clear future hikes could still be needed. Furthermore, several policymakers cautioned against reading too much into survey data such as the August PMIs as there is a growing gap between hard data and sentiment readings. Since then, national CPIs bolstered the case for a 25bps hike to around 60%. However, recent remarks from ECB's Schnabel which took a more balanced view (compared to expectations of a more hawkish tone) have seen the odds of further tightening drop to around 40%. 
  

31 Aug 2023 - 08:27- Fixed IncomeData- Source: Newsquawk