A breakdown of prices showed that service inflation, which is a particular focus of the European Central Bank because of its high correlation with domestic factors, slowed slightly to 4%. Oxford Economics’ Daniel Krall, via X, said this was the most worrying detail for the ECB, noting that the ECB’s momentum has been building in recent months. In contrast, energy prices rose 1.3% on an annual basis, up from a 0.2% rise in June.
More volatilely reflecting current trends, month-on-month, prices were generally flat, although prices for goods fell by 2.6% and prices for services rose by 1.2%. JPMorgan’s Greg Fusesi said in a note to clients that the decline in commodity prices could have been even greater had it not been for strong clothing sales in Italy, which would have been lower than retailers’ usual summer discounts. was significantly lower this year than last year. As a result, Italy’s annual CPI more than doubled from 0.8% in June to 1.7%.
Fuzesi also called attention to Eurostat rounding effects, suggesting that, taken together, the “upward surprise” to the headline numbers could be more noise than signal.
close call
The ECB’s next monetary policy decision will be taken on September 12th. President Christine Lagarde said at a previous press conference that there was a “wide range” for September’s decision, but markets have priced in an 80% chance that the ECB will cut key deposit lines. The interest rate will be raised to 3.5% from the current 3.75%.
The key question will be how policymakers judge price pressures in the most important service sector.
George Moran, European economist at Nomura, said: “They certainly want services inflation to come down from where it is now,” but today’s announcement leaves the possibility of a rate cut open. added.
Further complicating matters for policymakers, despite early signs of economic slowdown, the eurozone economy continued to grow at a healthy 0.3% in the second quarter, the euro said. Stat announced on Tuesday.
“Today’s numbers slightly reduce the chances of a September rate cut,” said Carsten Brzeski, global head of macro at ING. “However, the ECB still needs to see six weeks of data before making a decision.”
