Friday, July 30, 2021 11:56 AM EST
Inflation jumped on food and energy prices, while core inflation ticked down despite German VAT effects kicking in. Not much evidence of overheating in this release. Unemployment continues to come down on the reopening of economies, providing more upside for medium-term inflation.
The inflation rate for July ticked back up above the European Central Bank's target, but remember, President Christine Lagarde made it very clear that the central bank won’t act on temporary inflation. This release didn’t provide much evidence of more structural inflation as core inflation fell back from 0.9% to 0.7%. While it ticked up strongly in Germany on the back of VAT effects, other countries have seen a drop that more than offset this effect.
Non-energy industrial goods inflation, which had been rising over recent months, fell back from 1.2% to 0.7%, which indicates that the price pressures related to transport costs and input shortages are not yet translating into soaring consumer goods prices. Services inflation only increased from 0.7% to 0.9%, which shows a modest increase but certainly does not give the impression of broad price hikes on the reopening of economies.
Still, this doesn’t mean that the inflation concern is over. We expect both services and goods inflation to trend higher in the coming months and food and energy prices have outperformed our expectations so far. This adds to upside inflation risk for the months ahead.
Also important is that the labour market performs very well. Today’s release showing that unemployment declined to 7.7% confirms the labour market is getting tighter on reopening. We are cautious about drawing longer term implications from this, because furlough schemes ending and additional slack outside of the labour force could well cause wage growth to remain modest in the recovery phase. But nevertheless we do like to note that the job market improvements so far add to some additional medium-term inflation risk.
Disclaimer: This publication has been prepared by the Economic and Financial Analysis Division of ING Bank N.V. (“ING”) solely for information purposes without regard to any ...
more
Disclaimer: This publication has been prepared by the Economic and Financial Analysis Division of ING Bank N.V. (“ING”) solely for information purposes without regard to any particular user's investment objectives, financial situation, or means. ING forms part of ING Group (being for this purpose ING Group NV and its subsidiary and affiliated companies). The information in the publication is not an investment recommendation and it is not investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Reasonable care has been taken to ensure that this publication is not untrue or misleading when published, but ING does not represent that it is accurate or complete. ING does not accept any liability for any direct, indirect or consequential loss arising from any use of this publication. Unless otherwise stated, any views, forecasts, or estimates are solely those of the author(s), as of the date of the publication and are subject to change without notice.
The distribution of this publication may be restricted by law or regulation in different jurisdictions and persons into whose possession this publication comes should inform themselves about, and observe, such restrictions.
Copyright and database rights protection exists in this report and it may not be reproduced, distributed or published by any person for any purpose without the prior express consent of ING. All rights are reserved. ING Bank N.V. is authorised by the Dutch Central Bank and supervised by the European Central Bank (ECB), the Dutch Central Bank (DNB) and the Dutch Authority for the Financial Markets (AFM). ING Bank N.V. is incorporated in the Netherlands (Trade Register no. 33031431 Amsterdam). In the United Kingdom this information is approved and/or communicated by ING Bank N.V., London Branch. ING Bank N.V., London Branch is deemed authorised by the Prudential Regulation Authority and is subject to regulation by the Financial Conduct Authority and limited regulation by the Prudential Regulation Authority. The nature and extent of consumer protections may differ from those for firms based in the UK. Details of the Temporary Permissions Regime, which allows EEA-based firms to operate in the UK for a limited period while seeking full authorisation, are available on the Financial Conduct Authority’s website.. ING Bank N.V., London branch is registered in England (Registration number BR000341) at 8-10 Moorgate, London EC2 6DA. For US Investors: Any person wishing to discuss this report or effect transactions in any security discussed herein should contact ING Financial Markets LLC, which is a member of the NYSE, FINRA and SIPC and part of ING, and which has accepted responsibility for the distribution of this report in the United States under applicable requirements.
less
How did you like this article? Let us know so we can better customize your reading experience.
