Fra Danske Bank:
Overview: Realised inflation cooled in June on both sides of the Atlantic. The
moderation was not driven by just lower energy prices, but also broader price
pressures eased, particularly in services. Inflation expectations also declined
temporarily, but have since turned higher, as energy prices rose again in July. We
continue to see risk of underlying inflation turning more persistent is
relative higher in the US compared to the euro area.
• Inflation expectations: Euro area’s 1-year inflation expectations have jumped to
about 3.0%, but longer-term forward expectations remain well anchored.
• US: June CPI landed well below expectations in both headline (3.5% y/y; cons.
3.8%, May 4.2%) and core terms (2.6% y/y; cons. 2.9%; May 2.8%). Inflation cooled
on a broad basis, but the largest downside surprises relative to our forecast were
seen in housing and non-housing services. Core goods prices recorded their
second consecutive month of outright deflation (-0.09% m/m SA, May -0.11%).
The release greatly decreases the risk of the Fed hiking rates in July, and we
continue to forecast the first rate hike for the December meeting.
• Euro area: HICP inflation declined more than expected in June to 2.8% y/y. The
decline was broad-based across energy, food and core inflation. Core inflation fell
to 2.4% y/y, driven by services falling from 3.5% y/y to 3.2% y/y. Services
momentum eased to around 0.2% m/m s.a., following the strong rises seen in
recent months. Inflation in Q2 has now averaged 3.0% y/y – below the ECB’s latest
projections of 3.2% y/y across all their scenarios. Food prices continued to fall in
June, and goods price momentum remains low, meaning that the indirect effects
from the energy shoc
