Euro-zone Final HICP (Aug.)

Rising costs – from shipping to energy – are likely to push euro-zone inflation up even further in the coming months. They might also mean that it doesn’t fall quite as quickly next year as we currently assume. But by the end of 2022, we still suspect that inflation will be a long way below the ECB’s target.
Jack Allen-Reynolds Senior Europe Economist
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European Data Response

Euro-zone Final HICP (Sep.)

Euro-zone inflation looks set to climb further in the coming months as higher input and energy costs feed through. An unusually cold winter would put even more upward pressure on gas prices in the short term, but we still think that headline and core inflation will fall sharply next year to well below 2%.

20 October 2021

European Economic Outlook

Running into troubled waters

Supply chain problems will slow the recovery and keep inflation above target until around the middle of next year. Beyond that, however, the economy should get back on track. After regaining its pre-crisis level later this year, output is likely to converge with its pre-pandemic trend. Meanwhile, we do not expect significant second-round effects from the recent surge in prices and think wage increases will remain quite modest. Headline inflation is likely to drop back below the ECB’s target by the end of next year, as energy inflation turns negative. So while the ECB will end its emergency PEPP purchases next March, it will step up its regular asset purchases and leave the deposit rate at -0.5% until around 2025, which is a lot later than financial markets anticipate.

19 October 2021

European Economics Weekly

Energy, semi-conductors and Italy’s Green Pass

The continued high level of energy prices strengthens our view that euro-zone inflation will keep rising in the coming months. But by lowering consumers’ purchasing power, it could actually reduce inflationary pressure in the medium term. Meanwhile, data released this week added to the evidence that supply problems are weighing on German car manufacturers, and things are unlikely to get better any time soon. Finally, Italy’s new Green Pass requirement for workers came into force today, sparking protests at a number of ports. But so far the disruption seems to have been limited.

15 October 2021

More from Jack Allen-Reynolds

CE Spotlight

How long will pandemic price pressures last?

Global supply problems could put some further upward pressure on inflation in the near term, but the increase in inflation experienced in the immediate wake of the COVID crisis is close to peaking and we expect headline inflation to fall back in every major advanced economy in 2022. Underlying price pressures are likely to remain muted in Europe and Japan throughout this year and next. However, a combination of large amounts of fiscal and monetary support, and a longer-lasting drop in the labour force, means that core inflation in the US will remain well above target in 2022.

10 September 2021

European Economics Weekly

A look ahead to December’s ECB meeting

Following yesterday’s comments from ECB President Christine Lagarde, the Bank looks set to make crucial decisions about the future of QE at its December meeting. We suspect that it will end its net purchases under the PEPP next March, but increase the pace of APP purchases by more than most expect. Interest rates are also likely to remain on hold for longer than is priced into markets. Meanwhile, data from the UK suggest that Covid and shortages of both goods and labour are putting the brakes on the economic recovery there, but we remain cautiously optimistic about the euro-zone outlook.

10 September 2021

European Data Response

Euro-zone GDP & Employment (Q2)

With revised data showing that the euro-zone economy performed even better than previously thought in Q2, the ECB is sure to revise up its GDP forecasts on Thursday. That said, even if it reduces the pace of its PEPP purchases slightly, the Bank will stress that very loose monetary policy is still required.

7 September 2021
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