Inflation impact of high gas prices will last into 2022

The recent surge in the prices of natural gas and coal, and therefore electricity too, has boosted energy inflation and suggests the risks to our near-term forecast for headline inflation lie to the upside. But the effects of this will start to fade next spring and, in any case, will have next to no bearing on core inflation.
Jessica Hinds Europe Economist
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European Economics Weekly

A fresh start for the Bundesbank?

Other than Mr Weidmann’s abrupt departure from the Bundesbank, the news this week has been dominated by the twin problems of rising inflation and slowing economic growth. There is more bad news to come, including a further increase in inflation in October (data due next Friday). However, the ECB is sure to leave its policy unchanged at next Thursday’s monetary policy meeting and will reiterate its view that the inflationary pressures will be largely transitory. We agree with this, but there are growing risks that the increase in inflation will be larger and last longer than either we or the ECB are currently forecasting.

22 October 2021

European Data Response

Euro-zone Flash PMIs (Oct.)

October’s euro-zone PMI surveys suggest that supply problems in the manufacturing sector are getting worse, weighing on output and causing price pressures to intensify.

22 October 2021

ECB Watch

ECB insisting that inflation is largely transient

Nobody expects the ECB Governing Council to make any policy changes at next week’s monetary policy meeting. However, Christine Lagarde will address concerns about rising inflationary pressures and we expect her to reiterate that, even if they are stronger than anticipated, they are likely to prove temporary. She will probably also stress that the ECB’s current guidance implies that rate hikes are further away than suggested by financial markets. Otherwise, the focus will be on when and how to end the PEPP, decisions on which are scheduled for December.

21 October 2021

More from Jessica Hinds

European Economics Update

Euro-zone driver shortages less acute than in the UK

The shortage of heavy goods vehicle (HGV) drivers in the euro-zone appears to be nowhere near as acute as in the UK. We therefore don’t expect to see a surge in drivers’ wages that would lead to widespread upward pressure on pay throughout the euro-zone labour market. What next for the ECB? We’re hosting a post-mortem after Thursday’s Governing Council meeting at 1100 ET to discuss its decision and our views on the euro-zone’s economic and inflation outlook. Register here.

7 September 2021

European Data Response

EZ Unemployment (Jul.) & Final Mfg PMIs (Aug.)

The fall in euro-zone unemployment in July appears to be down to a decline in the overall labour force rather than an increase in employment, highlighting that the labour market recovery still has a long way to go. But with hiring activity increasing, the jobless rate should continue to fall.

1 September 2021

European Economics Focus

Getting a handle on euro-zone wage data

Euro-zone wage data are published only quarterly, and with a long lag, and have been distorted by pandemic-related effects. So it will be another six months before we get a clearer idea of the underlying trend in earnings. For now, though, measures of spare capacity suggest that wage growth is likely to remain around 2.0-2.5%, which has in the past not been enough to push consumer price inflation to 2%.

31 August 2021
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