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EUROPEAN INFLATION: Rebound In Services Inflation Momentum, But Don't Overreact

EUROPEAN INFLATION
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Eurozone services inflation momentum rebounded 60bps to 3.16% on a 3m/3m seasonally adjusted and annualised basis (using ECB data), ending an eight-month streak of decelerations. This came as sequential SA services prices rose 0.33% M/M (vs 0.30% in Jan, 0.32% in Dec), with November’s soft 0.06% M/M reading falling into the denominator of the calculation. 

  • Although annual NSA services inflation was slightly weaker-than-expected at 3.73% Y/Y (vs 3.8% MNI consensus, 3.93% prior), the seasonally adjusted data suggests underlying price pressures still remain a little firm
  • For hawkish ECB policymakers (nowadays led by Executive Board member Schnabel), this development will underscore the need for a more cautious approach to policy ahead.
  • However, we think the majority of the Governing Council will want to avoid overreacting to one month of data. Services inflation momentum has seen an impressive pullback over the last few months, and encouraging developments in labour cost pressures suggests annual NSA inflation readings should continue to decelerate in the months ahead.
  • Non-energy industrial goods momentum ticked up to 0.68% (vs 0.59% prior), with sequential prices rising 0.12% M/M (vs 0.06% prior).
  • Taken together, this left core inflation momentum at 2.21% (vs 1.83% prior).    
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Eurozone services inflation momentum rebounded 60bps to 3.16% on a 3m/3m seasonally adjusted and annualised basis (using ECB data), ending an eight-month streak of decelerations. This came as sequential SA services prices rose 0.33% M/M (vs 0.30% in Jan, 0.32% in Dec), with November’s soft 0.06% M/M reading falling into the denominator of the calculation. 

  • Although annual NSA services inflation was slightly weaker-than-expected at 3.73% Y/Y (vs 3.8% MNI consensus, 3.93% prior), the seasonally adjusted data suggests underlying price pressures still remain a little firm
  • For hawkish ECB policymakers (nowadays led by Executive Board member Schnabel), this development will underscore the need for a more cautious approach to policy ahead.
  • However, we think the majority of the Governing Council will want to avoid overreacting to one month of data. Services inflation momentum has seen an impressive pullback over the last few months, and encouraging developments in labour cost pressures suggests annual NSA inflation readings should continue to decelerate in the months ahead.
  • Non-energy industrial goods momentum ticked up to 0.68% (vs 0.59% prior), with sequential prices rising 0.12% M/M (vs 0.06% prior).
  • Taken together, this left core inflation momentum at 2.21% (vs 1.83% prior).    
ez_inflation_momentum