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Inflation surprises from Europe and the US
Confirmed
In Short: In the US, headline and core PCE inflation for August were released below expectations, even if part of the surprise was explained by technical revisions to past data.
Inflation in major eurozone economies rose faster than expected in September, driven by soaring energy costs, according to official data released Wednesday. In Germany, the annual inflation rate hit 3.3%, the fastest pace since December 2023, while Italy saw a jump to 4.2% and Spain reached 5%.
Analysts noted that energy and food inflation were the primary drivers of the unexpected surge. Mariana Monteiro from JPMorgan said, 'Energy inflation appears to have surprised on the upside in all countries that have reported so far, as has food inflation, although much more modestly.
Despite the surge, ECB chief Christine Lagarde maintained a moderate stance, stating, 'Because this year's inflation surge has yet to generate dangerous second-round effects across the eurozone, a moderate policy response from the European Central Bank remains appropriate.
However, some analysts believe the latest inflation readings could shift the debate at the ECB. Rory Fennessy of Oxford Economics said, 'The fact that inflation has surprised to the upside in September will only strengthen the case among the hawks in the [ECB governing council] for a more aggressive pace of tightening.
Core inflation in Germany, which excludes volatile food and energy costs, remained steady at 2.4% in September, according to some analysts. Jack Allen-Reynolds, an economist at Capital Economics, noted that the inflation readings 'suggest that the indirect effects of higher energy costs are beginning to feed through' to the wider economy.
The ECB had expected inflation to accelerate from 3.3% in the third quarter to 3.6% in the final three months of the year, but economists now predict the actual peak to be closer to 4% due to sky-high energy costs. This has raised expectations that the ECB will tighten monetary policy further in the coming months to rein in inflation, potentially dampening the eurozone's economic growth.
In the US, headline and core PCE inflation for August were released below expectations, even if part of the surprise was explained by technical revisions to past data. Corporate inflation expectations remained elevated at 2.6% within three years but did not accelerate from three months earlier.
With core inflation still at the same level as it was before the Middle East war started – 2.4% in both February and August – eyes will once again be on whether signs of second-round effects are kicking in. The next key data release will be September inflation, due on 14 October.
What this adds
The unexpected inflation surge in the eurozone is raising concerns about the potential for more aggressive policy responses from the ECB, despite the current moderate stance.
What's confirmed
- We have started to see some small signs that core inflation pressures are moving higher in Japan.
- US headline and core PCE inflation for August released below expectations, even if part of the surprise was explained by technical revisions to past data.
- Inflation seems to be picking up momentum in the euro area as HICP inflation prints from France, Italy and Germany on Wednesday were well above expectations.
- Corporate inflation expectations remained elevated at 2.6% within three years but did not accelerate from three months earlier.
- But with core inflation still at the same level as it was before the Middle East war started – 2.4% in both February and August – eyes will once again be on whether signs of second-round effects are kicking in.
- He joined the firm in 1998 in London and has been covering G7 and Western European economies.
- The next key data release will be September inflation, due on 14 October.
- Eurozone (Bert Colijn) Inflation (Fri): Eurozone inflation continues to move mainly on energy prices at the moment.
What's still developing
- In Italy, inflation jumped to 4.2%, nearly a full percentage point above the 3.3% recorded in August, the Istat agency reported.
- The price hikes are well above the European Central Bank's (ECB) inflation target of 2%, raising the likelihood it will raise interest rates further.
- India Emphasizes That Shipping Chaos, Not Supply, Is Driving High Oil Prices The U.S. Administration has urged Germany and France, Europe’s largest economies that hold a sizeable chunk of the EU’s emergency reserves, to release diesel from emergency stockpiles or face a potential U.S. diesel export ban, sources close to the discussions told Reuters on Thursday.
- The Administration, however, is looking at other ways to ease the diesel crunch, including by pressuring Europe into releasing diesel from emergency stocks.