- July preliminary CPI +2.9% vs +2.9% y/y expected
- Prior +2.8%
- July preliminary core CPI +2.5% vs +2.4% y/y expected
- Prior +2.4%
Headline annual inflation in the euro area is seen climbing slightly in July to 2.9%, moving above the 2.8% estimate in June. However, the more concerning development is a further nudge up in core annual inflation too. That is seen moving up to 2.5% in July from the 2.4% estimate in June.
So, it’s not just a case of energy prices moving up as being the culprit here. The breakdown for July shows:
- Food price inflation +1.2% vs +1.5% prior
- Energy price inflation +10.0% vs +8.5% prior
- Services inflation +3.3% vs +3.2% prior
Of note, the monthly rate shows a strong push up in both energy prices (+2.4%) and service prices (+1.1%) while food prices were flat.
All in all, it’s a signal to the ECB that they can’t quite rest on their laurels when they return from the summer break in the months to come. If the trend keeps as it is in August, another rate hike in September looks to be well on the cards at this rate.
Looking to market pricing, traders are seeing ~66% odds of a rate hike in September next. That is just a mild step up from ~64% earlier this week. By year-end, traders are still pricing in ~38 bps of rate hikes with ~52 bps of rate hikes priced before the middle of 2027.
This article was written by Justin Low at investinglive.com.