“Underlying inflation” still weak

Core inflation in the euro-zone rose to 1.9% in September, its highest level in nearly 13 years, but other measures of underlying inflation are much lower. This supports our view that when the temporary forces pushing up inflation have faded, the core rate will settle well below the ECB’s target.
Jack Allen-Reynolds Senior Europe Economist
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European Economics Weekly

ECB’s line on inflation contrasts with the Fed’s

In contrast to those at the US Fed, ECB policymakers are not ready to retire their argument that the current bout of high inflation is temporary. This reflects the significant difference in inflationary pressures between the two economies. Next week, we will get the detailed breakdown of November’s German inflation data, which will shed more light on the stronger-than-expected outturn. Meanwhile, with less than two weeks to go until December’s ECB meeting, the Governing Council appears to have reached a consensus on some aspects of its asset purchase programmes. But comments from Christine Lagarde today suggest that it will avoid making any long-term commitments.

3 December 2021

European Data Response

Euro-zone Retail Sales (Oct) & Final PMIs (Nov.)

Euro-zone retail sales have levelled off since June, but rising Covid cases and the return of restrictions are likely to weigh on sales and other components of consumption in the coming months.

3 December 2021

European Data Response

EZ Unemployment (Oct.)

While labour market conditions continued to improve in October, the recent deterioration of the Covid situation and increased uncertainty due to the Omicron variant are likely to mean the recovery takes a breather over the next couple of months, just as it did when restrictions were in place at the start of 2021.

2 December 2021

More from Jack Allen-Reynolds

European Economics Update

ECB growing more uncertain about inflation outlook

The account of September’s ECB meeting revealed many policymakers believed that inflation may stay higher for longer than the Bank’s projections show. Recent developments have added to the upside risks.

7 October 2021

European Economics Update

Changing HICP weights add to inflation uncertainty

Changes to the weights applied to the goods and services in the inflation basket pushed inflation up in January, but since April the new weights have kept the headline rate lower than it would otherwise have been. The impact of next year’s changes in January is uncertain, but over the course of 2022 they are likely to mean that inflation falls a little more quickly than it otherwise would have done.

5 October 2021

European Economics Update

Households’ excess savings continue to build

Households continued to accumulate “excess” savings in Q2 this year, with those held as cash and bank deposits equivalent to about 4% of GDP. We do not expect all of this to be spent, but some of it will. And it should also provide a small indirect boost to GDP by strengthening households’ balance sheets.

4 October 2021
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