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EMU CommentCore inflation weaker, but unemployment lower

  1. Core inflation decreased
  2. But unemployment rate lower
  3. Neutral for the ECB
Core inflation decreased
Eurozone annual consumer price inflation for August decreased slightly, as we expected, to 2.0 percent, from 2.1 percent previously. The outcome was perhaps rather unsurprising after softer German HICP inflation data yesterday. The decline was driven by core prices, as annual core HICP inflation also dipped to 1.0 percent, from 1.1 percent previously. There is still therefore little sign of core inflation picking up, while the base effect in H2 2018 from increasing energy prices in H2 last year will act to dampen headline inflation for the reminder of the year.
But unemployment rate lower
We still see arguments for gradual increasing core inflation ahead, as conditions in the labour market continue to tighten. Today’s unemployment numbers confirmed that, as the unemployment rate was unexpectedly lower than we expected, at 8.2% in July, after being revised down to 8.2% in the two previous months. Even though it seems we have entered a softer patch (first graph) in the decreasing unemployment trend, it is nothing that we have not seen before during the past five years.
Neutral for the ECB
As mentioned before, the unemployment gap has closed and there are finally signs of negotiated wage inflation increasing (second graph). Given the capacity constrains, we expect the situation to continue, at least over the coming year. Tp summarise, we do not expect today's data to have a significant impact on the ECB’s current policy plans.


Source: Macrobond

 


Source: Macrobond


Disclaimer

Rasmus Gudum-Sessingø

Senior Economist

Eurozone

ragu02@handelsbanken.dk

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