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Aug HICP: Nomura Sees Hawkish Skip In Sept; TD Sees Hike (2/2)

EUROZONE DATA
  • JP Morgan: “Interpreting the Euro area core data has been hard due to distortions (a base effect this summer due to German transport prices and the impact of HICP weight changes this year). We think these effects are currently lifting core inflation by 0.7-0.8%-pt, thus core inflation would be closer to 4.5%oya once these distortions are controlled for. These distortions are concentrated in services. Excluding those distortions services price inflation would also be close to 4.5%oya. These distortions will start to drop off meaningfully in September. The transport price distortion (a base effect worth about 0.3%-pt) will come off the number next month. The weight distortion will also gradually disappear during the rest of the year starting next month. “
  • Nomura: "We know the ECB expected headline HICP inflation of 5.5% for July, and we think it likely expected 5.3% for August. If we assume our forecast for September is realised, core HICP inflation would average 5.2% in Q3 2023, in line with the ECB’s own forecast. Hence, core inflation data appear to be evolving in line with its expectations for the moment…This, in our view, justifies the ECB skipping September in a hawkish manner. However, we think that, come October, data will have justified a de facto end to the ECB's hiking cycle, leaving the depo rate at a terminal level of 3.75%."
  • Nordea: “The key discussion points at the ECB are likely to centre on the core disinflation process. On the one hand, the economic outlook is deteriorating … On the other hand, core inflation remains stubborn and the labour market remains tight, suggesting that more may need to be done either in terms of additional rate hikes or a longer period of keeping rates high...Today’s data does not push expectations significantly in either direction, though on the margin core services price inflation remains stubbornly high and keeps the risk of a rate hike alive. However, we stick to the view that the ECB is most likely done hiking.”
  • TD: “The strength in core was largely driven by a sharp 0.6% m/m rise in core goods prices—the second largest August increase on record….Key though for the ECB is services inflation, and here development were more promising, with a 0.2% m/m increase (roughly normal for August) pulling the year-on-year rate down to 5.5%. That said, this comes following two notably strong prints in June and July, so it is too early to tell what this means for the trajectory of services inflation moving forward. In fact, 3m/3m momentum in services inflation still remains around its strongest on record. As such, today's data, while tentatively positive for services, continues to suggest that the ECB will deliver another 25bps hike at the September meeting.”
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