MNI 5 THINGS: EMU HICP Running On Oil Inflation

By Jai Lakhani 

     LONDON (MNI) - Eurozone data published Friday could show a narrowing of the

divergence between core and headline inflation in August as oil price pressures

appear to have eased. Unemployment for the month of July may also have fallen

from June's 8.3%, already the lowest rate in almost ten years, analysts expect.

     Ahead of the release, we outline five themes for attention.

     - HICP Over-Estimated Slightly in August: Over the past fifteen years,

there have been four overestimates, four underestimates and seven correct

estimates by analysts. All of the under and overestimates have been by 0.1

percentage point (pp), except for one over-estimate of 0.2pp in 2008, tipping

the average to a slight over-estimate in August of 0.007pp

     - Germany's Inflation Drops Below 2.0%: August inflation data has already

been released in Germany and Spain, which together account for 39.6% of the

ECB's overall HICP calculation. German inflation fell by 0.2pp to 1.9% while

Spain's eased by 0.1pp to 2.2%. The two countries, combined with France and

Italy, make up 77.2% of the Eurozone weighting.

     - Energy Inflation Could Cool In August: The surge in energy prices has

been one of the main contributors to the Eurozone inflation rate over the past

three months and made the largest contribution to the total in the previous two

months. Energy contributed 0.89pp to July's total, the most since September

2012.

     However, the average price of a barrel of oil so far this month, up to the

29th August, was EUR 63.65, compared to July's average of EUR 64.15, suggesting

a calming of prices for the commodity since the sharp rise in May.

     - Underlying Inflation Below ECB Target: The effect of the surge in energy

inflation has been to drive an increasing divergence between headline and core

inflation. The gap of 1.07pp in July was the highest since February 2017, which

in turn was the highest in exactly 5 years. A stabilisation of oil prices could

mean that HICP will move towards core HICP, which remains well below the ECB's

target at 1.07%.

     - Unemployment in The Euro Area Lowest Since December 2008: Unemployment in

the Euro Area in June matched the previous month's 8.3%- the lowest rate since

December 2008. Analysts expect this to decline further to 8.2%.

     However, analysts tend to underestimate unemployment in July, with 11 of

the past 15 estimates being under-estimates, compared to two over-estimates and

two correct estimates. This gives an average an under-estimate of 0.19 pp. A

caveat is that the over-estimates have been made in two out of the last three

years, and the last under-estimate was in 2014, so the trend could be reversing.

--MNI London Bureau; +44 203 865 3828; email: jai.lakhani@marketnews.com

--MNI London Bureau; +44208-865-3829; email: Jason.Webb@marketnews.com

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