Solid EA core inflation unlikely to stop a ECB rate cut next week
Solid core inflation may not stop next week's ECB rate cut, but raises questions about the pace of further cuts.
Euro area underlying inflation - as measured by the core CPI - exceeded market expectations again in May, this time by about 0.2pp, with a still uncomfortable mix of strong growth in services inflation and falling goods prices.
The result should give the ECB pause for thought, although it is probably not enough to stop the Governing Council from delivering its long-telegraphed rate cut next week.
However, it will probably reinforce the council's caution about the pace of further cuts, particularly when the euro area unemployment rate remains steady at a multi-decade low of 6½%.
On CCI's seasonal adjustment, the preliminary euro area core CPI rose by another 0.3% in May, having increased by 0.3% in five of the past six months. The estimated trend in the core CPI is now growing at an annualised monthly rate of almost 4%, up from a low of about 1½% in November
- Core goods prices are still following the lead of the USA, falling
by 0.1% in for the third month in a row in May. In trend terms,
annualised monthly core goods disinflation continued to slowly intensify,
running at an estimated -1¼% in May.
- Services prices posted a solid increase of 0.4% in May after a 0.5% rise in April (initially estimated as a 0.4% increase). Estimated trend annualised monthly services inflation accelerated further to about 5½% (previously around 5%), which compares with a low of about 2¾% late last year.
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Based in Sydney, Kieran Davies is Chief Macro Strategist at Coolabah Capital Investments, an asset manager with 40 executives and over $8 billion in fixed-income strategies. Kieran is responsible for macroeconomic research and investment strategy, contributing to the investment decisions of the firm. Kieran has long experience as a macroeconomist in both the private and public sectors. He has worked most recently as Chief Markets Economist for National Australia Bank and was previously Chief Economist, Australia and New Zealand, for Barclays Bank and ABN Amro Bank/RBS. Kieran also worked as Principal Adviser on the macroeconomy and budget policy in the Commonwealth Treasury and Director of Forecasting.
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Based in Sydney, Kieran Davies is Chief Macro Strategist at Coolabah Capital Investments, an asset manager with 40 executives and over $8 billion in fixed-income strategies. Kieran is responsible for macroeconomic research and investment strategy,...
Based in Sydney, Kieran Davies is Chief Macro Strategist at Coolabah Capital Investments, an asset manager with 40 executives and over $8 billion in fixed-income strategies. Kieran is responsible for macroeconomic research and investment strategy,...
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