Underlying inflation in the euro area probably only dipped a touch this month, strengthening arguments for one final hike in interest rates by the European Central Bank next month.
(Bloomberg) — Underlying inflation in the euro area probably only dipped a touch this month, strengthening arguments for one final hike in interest rates by the European Central Bank next month.
Core price gains, closely monitored by officials, moderated to 5.3% from 5.5% in July, according to a Bloomberg survey of 30 economists. Headline inflation is expected to have eased at a similarly pace — to 5.1%.
Bloomberg Economics’s Nowcast model — incorporating 32 variables ranging from unemployment to energy costs — is more optimistic on both measures, projecting each will slow to 5%.
The numbers, to be released by Eurostat on Aug. 31, are among the most important as ECB officials deliberate over whether their nine rate increases since mid-2022 will be sufficient to return inflation to 2%.
President Christine Lagarde, who’s said the mid-September decision will be between a hold and a hike, will offer her views on the current situation at a speech later Friday in Jackson Hole, Wyoming, where the Federal Reserve Bank of Kansas City is holding its annual get-together of policymakers.
When the ECB last raised rates, in July, Lagarde sounded a cautious tone on the 20-nation euro-region economy, which has been weighed down by both elevated prices and, more recently, the monetary tightening enacted to rein them in.
A survey of purchasing managers released this week signaled further economic weakness in August as the services sector followed manufacturing in to a downturn. The data prompted investors to bet on a pause next month.
Some of Lagarde’s colleagues have urged restraint as higher borrowing costs threaten to tip the currency bloc into a recession. Governing Council member Mario Centeno told Bloomberg TV on Thursday that officials should be cautious in deciding on the next steps as risks for the economy that have previously been identified are now becoming reality.
There’s been some progress on the inflation front of late, too. ECB research suggested that underlying price growth has probably peaked, while consumer expectations for the coming years have decreased.
Still, his German counterpart, Joachim Nagel, said he’s not convinced inflation is under control enough and it’s “much too early to think about a pause.”
Economists polled by Bloomberg predict one final increase in the ECB’s deposit rate, to 4%, at its next meeting.
In the runup to the euro-area number, inflation in Germany and Italy is predicted by economists to have slowed, while they reckon it will have accelerated in France and Spain.
–With assistance from Andrej Sokol (Economist) and Ros Krasny.
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