Headline and core consumer price growth in the Eurozone continued higher in August and once again pushed into record territory, an increase analysts say has raised the likelihood of a 75-basis point rate hike from the European Central Bank next week.
Headline annual inflation in the Eurozone grew to an all-time high of 9.1% this month, which beat both the market expectation of 9.0% and July’s rate of 8.9%, the previous record.
The core rate also at reached it highest point in the history of the single currency with a spike to 4.3% versus the economists’ expectation of 4.1% and July’s rate of 4.0%, the previous record. The monthly core rate jumped to a whopping 0.5% from 0.1% last month.
“Looking ahead, inflation will rise further in the coming months as temporary measures pushing prices down in Germany expire and the surge in European gas prices continues to feed through to energy, food and core consumer prices,” Capital Economics said in a note. “Before the end of the year, we expect headline inflation to hit 10%.”
Germany, Europe’s largest economy, instituted fuel tax breaks and began offering cheap commuter and railway tickets at the start of June, measures set to end today. However, earlier this month, German Chancellor Olaf Scholz said the country would cut the value-added tax on natural gas from the standard rate of 19% to 7% until 2024.
On Tuesday, Germany’s first estimate for EU-harmonised inflation in August showed a rise to 8.8% -- the market forecast – from 8.5% in July. The news followed Spain’s preliminary inflation report, a decline in line with expectations to 10.3% from 10.7%.
EU-harmonised consumer prices in Italy soared to 9.0% from 8.4% last month; the market estimate was for a decline.
France bucked the trend with a larger-than-expected decline in the inflation rate to 6.5% from 6.8%.
Time for ECB to go big?
Although euro area inflation barely exceeded the market estimate of 9%, analysts said the new record should embolden ECB governing council members who want to make a statement about fighting consumer price growth. Piet P.H. Christiansen, who covers the lender for Danske Bank, tweeted that the August rate “speaks in favour of the hawkish narrative of a 75bp hike next week.”
Frederik Ducrozet, head of macroeconomic research at Pictet Wealth Management, tweeted, “This may tip the balance for a 75bp ‘front-loaded’ rate hike.”
Oxford Economics said it was also on board with the thesis and outlined its projection for near-term ECB monetary policy: “We expect the ECB to follow up a 75bps rate hike in September by another 50bps in October and 25bps in December given a higher inflation peak driven by energy prices. We see a dovish pivot only in 2023 after another 25bps move in February, as we anticipate the eurozone to fall into recession.”
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postMessage({ action: 'CheckChannelStatusReponse', stream_status: data.stream_status.status, onair: data.stream_status.onair, connected: data.stream_status.connected });
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session_info.http_referrer = data.http_referrer;
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- Annual headline, core rates hit new highs
- Monthly core rate surges to 0.5%
- Analysts see larger chance of 75bp hike from ECB
By Eric Culp, European Editor
LiveSquawk News
@EricCulpLS
31 August 2022 | 09:50 GMT
Headline and core consumer price growth in the Eurozone continued higher in August and once again pushed into record territory, an increase analysts say has raised the likelihood of a 75-basis point rate hike from the European Central Bank next week.
Headline annual inflation in the Eurozone grew to an all-time high of 9.1% this month, which beat both the market expectation of 9.0% and July’s rate of 8.9%, the previous record.
The core rate also at reached it highest point in the history of the single currency with a spike to 4.3% versus the economists’ expectation of 4.1% and July’s rate of 4.0%, the previous record. The monthly core rate jumped to a whopping 0.5% from 0.1% last month.
“Looking ahead, inflation will rise further in the coming months as temporary measures pushing prices down in Germany expire and the surge in European gas prices continues to feed through to energy, food and core consumer prices,” Capital Economics said in a note. “Before the end of the year, we expect headline inflation to hit 10%.”
Germany, Europe’s largest economy, instituted fuel tax breaks and began offering cheap commuter and railway tickets at the start of June, measures set to end today. However, earlier this month, German Chancellor Olaf Scholz said the country would cut the value-added tax on natural gas from the standard rate of 19% to 7% until 2024.
On Tuesday, Germany’s first estimate for EU-harmonised inflation in August showed a rise to 8.8% -- the market forecast – from 8.5% in July. The news followed Spain’s preliminary inflation report, a decline in line with expectations to 10.3% from 10.7%.
EU-harmonised consumer prices in Italy soared to 9.0% from 8.4% last month; the market estimate was for a decline.
France bucked the trend with a larger-than-expected decline in the inflation rate to 6.5% from 6.8%.
Time for ECB to go big?
Although euro area inflation barely exceeded the market estimate of 9%, analysts said the new record should embolden ECB governing council members who want to make a statement about fighting consumer price growth. Piet P.H. Christiansen, who covers the lender for Danske Bank, tweeted that the August rate “speaks in favour of the hawkish narrative of a 75bp hike next week.”
Frederik Ducrozet, head of macroeconomic research at Pictet Wealth Management, tweeted, “This may tip the balance for a 75bp ‘front-loaded’ rate hike.”
Oxford Economics said it was also on board with the thesis and outlined its projection for near-term ECB monetary policy: “We expect the ECB to follow up a 75bps rate hike in September by another 50bps in October and 25bps in December given a higher inflation peak driven by energy prices. We see a dovish pivot only in 2023 after another 25bps move in February, as we anticipate the eurozone to fall into recession.”