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EMU CommentSoft data on unemployment and inflation

  1. The labour market improvement gearing down
  2. Core inflation slowed
  3. ECB locked-in on normalisation
The labour market improvement gearing down
The unemployment rate was steady at 8.1 percent in October, as we expected, while consensus saw a decline. Hence, the unemployment rate has stayed on 8.1 percent for four months, and this represents a slowdown on the labour market that we have not seen in four years. The number of unemployed actually rose for the first time in 15 months. The softer labour market sentiment barometers had suggested this, and point to a still stable development in the coming months (first graph). The slowdown is probably especially due to the increasing capacity constraints, while softer demand in recent quarters is likely to also having an increasing influence.
Core inflation slowed
Furthermore, the flash annual consumer price inflation decreased to 2.0 percent in November from previously 2.2 percent, as widely expected. This was primarily due to lower inflation rates within energy and food prices. However, core inflation also dipped to 1.0 percent in November from previously 1.1 percent, as service price inflation also slowed. This underlines the fact that the expected rise in core inflation is only going to proceed slowly, as capacity constraints and increasing inflation expectations are expected to pull up over the coming year (second graph).
ECB locked-in on normalisation
The soft touch of today’s numbers is not likely to change expectations of the ECB announcing an end to the Asset Purchase Programme on next week’s policy meeting. That the bar is very high for not doing so has been confirmed by speeches from both ECVB president Draghi and the ECB chief economist Praet this week. However, these speeches also contained a more negative tone on the economic risks. Draghi stated this time around that (only) at least some of the slowdown may be temporary, which was more bit more dovish than earlier, and Praet saw that headwinds have been “increasingly noticeable”. So today’s somewhat soft data outcome might increase the chance of the ECB changing to a “risks on the downside” stance and possibly a downward adjustment of the updated economic forecasts.

Source: Macrobond


Source: Macrobond


Rasmus Gudum-Sessingø

Senior Economist


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