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Cautious Optimism On Slowing Eurozone Inflation

EUROZONE
Following the German preliminary national inflation print for May (which came after this morning's French and Italian prelim prints), some initial views ahead of the Thursday morning release of the Eurozone estimate (1000BST - BBG survey shows 6.3% Y/Y expected, with 5.5% core, and 0.2% M/M, though this doesn't reflect today's data):
  • Goldman has downgraded their Eurozone headline Y/Y forecast to 6.04% (was 6.11%) with core to 5.32% (from 5.43%); core inflation %M/M is seen at 0.19%. They note that the EUR49 transportation ticket pulled down German headline inflation by about 0.3pp.
  • Berenberg trumpets that May's data signals "the worst is over", with "inflation to decelerate to 6.4% yoy in May from 7.0% in April. However, the data from the individual countries so far imply a good chance that the decline will be even steeper." That said, with inflation still well above target, Berenberg still expects 25bp hikes in June and July.
  • ING writes that the data "marks the next stage of a gradually broadening disinflationary process as the drop in headline inflation is no longer exclusively the result of base effects but also the result of dropping prices." But there is a lot of statistical noise in the 2023 data and the European inflation outlook will be impacted by two opposing drivers: lower-than-expected energy prices vs wage settlements/services pipeline pressures keeping core inflation high.
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