Europe looks to inflation data again later this week

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Now that markets can put behind them the US debt ceiling issue, the focus will start to turn back towards the balance between inflation, central banks, and the economic outlook.

For Europe, it will be more about the inflation outlook again this week as we will be getting preliminary CPI data across the region for the month of May. Here’s the agenda:

  • Spain May preliminary CPI figures (30/5)
  • Germany May preliminary CPI figures (31/5)
  • France May preliminary CPI figures (31/5)
  • Italy May preliminary CPI figures (31/5)
  • Eurozone May preliminary CPI figures (1/6)

Looking at estimates, headline annual inflation in the Eurozone is expected to drop further to 6.3% in May – down from the 7.0% reading in April. That will owe much again to further adjustments in base effects, as the impact of higher energy prices from last year gets phased out.

However, core annual inflation is estimated to keep thereabouts as in April (5.6% last month), with the expectation being 5.5% in May.

While it will take time for food price inflation to tail off potentially, the fact that core prices is expected to remain elevated would mean that the ECB cannot drop the ball on this one just yet.

As such, even with a lower headline reading, the fact that the core reading remains elevated will continue to pile on the pressure on the ECB to stay on the tightening path. But they can take heart from better developments in the former at least, although it remains uncertain whether what they have done is enough to bring prices back down to the 2% mark.

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