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Underlying Inflation Pressures Seen Remaining Sticky Despite Nov Miss


Analysts are broadly sceptical about whether the downside miss in Euro headline inflation in the Nov prelim reading (10.0% Y/Y vs 10.6% prior, 10.4% expected) was a major turning point for inflation.

  • Nomura maintain their expectation for a 75bp ECB hike in Dec, despite the inflation miss: "We think ECB members will look beyond today’s weak headline figure and take on board that in November although energy prices eased there was no slowdown in the momentum of core inflation. In fact, if anything that momentum is increasing, and rotating from goods to service prices." Inflation could remain high for multiple reasons: a lag from wholesale to retail energy prices; increasingly broad-based inflation; and potential for strong wage pressures. The see Y/Y as past the peak (10.6% in October) but see an uptick again to 10.4% in December and don't forecast a persistent fall until early 2023.
  • ING sees multiple factors swaying the ECB to hike 50bp in Dec rather than 75bp: "tentative signs of inflation peaking", "evidence of a wage-price spiral continues to remain absent and the environment is turning recessionary". They "think the focus should be more on what level inflation will trend down to, as opposed to whether this is the peak or not", but the overall outlook is that "more volatility in core inflation can be expected as the effects of two massive supply shocks play out but we don’t expect a quick drop in core inflation anytime soon."
  • Danske sees the evidence for a similar peak in underlying inflation pressures as "less clear-cut and ‘stickily’ high core inflation could remain a concern for ECB for some time yet", with markets underestimating upside risks and headline inflation set to remain above the ECB's target until the end of 2024.

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