Markets
look
to
flash
inflation
figures
for
the
euro
area
that
are
due
by
Eurostat
at
11am
Central
European
Time
on
Tuesday,
July
31,
after
prices
increased
by
a
higher-than-expected
2.5%
Y/y
in
June.
One
year
prior,
the
rate
had
been
5.5%.
Inflation
is
forecast
to
remain
stable
at
2.5%
in
July,
according
to
FactSet
consensus
estimates.
Core
inflation,
which
excludes
volatile
food
and
energy
prices,
is
expected
to
have
fallen
at
2.8%
Y/y
from
2.9%
in
June.
“Inflation
in
the
Eurozone
has
been
hovering
at
or
around
the
2.5%
mark
since
February
this
year.
July’s
inflation
print
is
unlikely
to
move
by
much
in
either
direction,
with
sticky
services
inflation
taking
its
time
to
fall,”
said
Michael
Field,
European
market
strategist
at
Morningstar.
In
June
2024,
the
greatest
contributors
to
the
annual euro
area inflation
rate
(HICP)
were
services
(+1.84
percentage
points,
pp),
followed
by
food,
alcohol
&
tobacco
(+0.48
pp),
non-energy
industrial
goods
(+0.17
pp)
and
energy
(+0.02
pp).
Why
Is
Eurozone
Inflation
So
Sticky?
The
June
headline
inflation
reading
of
2.5%
Y/y
is
in
line
with
the
average
inflation
readings
reported
since
the
start
of
the
year.
“A
key
reason
for
the
rather
sluggish
and
volatile
disinflation
process
is
stubbornly
high
services
inflation
that
is
stuck
at
around
4%
Y/y
since
November,”
Martin
Wolburg,
senior
economist
at
Generali
Investments,
told
Morningstar.
“However,
it
is
currently
also
boosted
by
price
increases
ahead
of
the
summer
holiday
season,
with
package
holidays
and
accommodation
showed
strong
price
hikes
in
June.
In
the
months
to
come
this
will
peter
out
again.”
With
the
Paris
Olympics
in
full
swing,
investors
are
wondering
whether
they
will
affect
inflation
via
an
increase
in
hotel,
restaurant
and
taxi
prices,
especially
in
Paris.
According
to
a
Nomura
report
released
on
July
24,
a
spike
in
the
cost
of
living
is
unlikely.
“The
impact
of
the
Olympics
on
inflation
data
will
likely
be
small.
Looking
back
at
past
Olympics
and
similar
sporting
events,
official
data
rarely
reflect
a
large
shock
to
services
inflation
and
other
economic
variables,”
they
said
in
the
note.
Where
Will
Inflation
Be
at
the
End
of
the
Year?
“In
the
third
quarter,
we
see
headline
inflation
coming
close
to
the
2%
threshold,”
Generali’s
Wolburg
anticipates.
“However,
the
elephant
in
the
room
remains
wage
growth.
We
expect
it
to
cool
on
the
back
of
a
less
strong
labour
market
and
ebbing
inflation
pressure.
But
disinflation
will
remain
a
cumbersome
process
that
could
easily
be
overshadowed
by
one-off
effects.”
Will
the
ECB
Cut
Interest
Rates
in
September?
After
June’s
initial
rate
cut,
the
European
Central
Bank
left
interest
rates
unchanged
at
its July
18
meeting,
but
the
markets
expect
another
cut
in
September.
“Although
headline
inflation
is
just
50
basis
points
above
the
ECB’s
targeted
level,
core
inflation
is
higher
again,
at
close
to
3%.
ECB
forecasts
suggest
this
may
take
until
2026
to
hit
the
magic
2%
level,
but
we
don’t
believe
this
will
stop
the
ECB
from
cutting
rates
further
in
the
meantime.
Rates
remain
high
at
3.75%,
giving
the
ECB
plenty
of
room
for
maneuver”,
Morningstar’s
Field
added.
According
to
Ulrike
Kastens,
European
economist
at
DWS,
ECB
statements
on
inflation
“remain
balanced”.
“In
our
view,
the
ECB
is
awaiting
further
data,
particularly
a
slowdown
in
wage
growth.
This
could
leave
room
for
further
easing
of
monetary
policy
restrictions.
We
still
expect
the
next
interest
rate
cut
in
September,”
she
said
in
a
note
on
July
18.
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