Softening Services Underline Signs Of A Peak In Core Inflation

The flash readings of Eurozone inflation came in at/slightly above consensus estimates coming into the week, but were mostly in line with the expectations formed after national-level prints received prior. All in all, core pressures remain uncomfortably high, but appear to be settling down to a sequential pace that is closer to 2% than to the 4-5% suggested by prints earlier in the year.

• Headline HICP printed at 5.3% Y/Y (5.26% unrounded, 5.3% Jul), and 0.6% M/M (0.56% unrounded, -0.1% July). Those were above the 5.1% / 0.4% consensus but accorded with MNI's estimates based on earlier national prints.
• Likewise the 5.3% Y/Y core HICP reading (5.29% unrounded, 5.5% Jul) with core at 0.3%% (0.34% M/M unrounded) were in line with MNI's expectation coming into the reading, and matched previous expectations - potentially reflecting marginal upside surprises to German and Spanish core, with softer French and Italian readings offsetting.
• On the headline front: energy prices rose 3.2% M/M, bringing the Y/Y rate to -3.3% from -6.1% in July, as various base effects reversed and oil prices rose. Unprocessed food prices fell 0.6% M/M, with procesed food/alcohol/tobacco up 0.3% - both Y/Y figures moderated (processed 10.4% vs 11.3% prior; unprocessed 7.8% vs 9.2% prior).
• As for core items, non-energy industrial goods prices continued deflating Y/Y, to 4.8% (5.0% prior), with services likewise a touch lower (5.5% vs 5.6% prior).
• While sequential NEIG deflation in the prior 2 months (incl -2.7% M/M in Jul) reversed to inflation (+0.6% M/M Aug), part of this may be due to effects of shifting sales periods.
• Additionally, services rose just 0.2% M/M - joint-lowest since January - vs 1.3% in July. The latter was boosted by statistical factors that should fade going forward. Indeed some had expected services would mark another Y/Y high in August before an inevitable fading in September onward - this report marked a positive development on the disinflation front in that regard.

Source: Eurostat, MNI