Overview: Inflation drivers continue to paint a mixed picture but inflation is likely to head lower through 2023 in US and the euro area. Price pressures from food, freight and energy have clearly eased. Labour markets remain tight, and while wage pressures have showed tentative signs of easing, underlying price pressures remain sticky. Especially the services sector drove upside surprises in the February core inflation prints. Despite the uncertainty around financial stability risks, we expect both the ECB and the Fed to continue hiking interest rates in the spring meetings.
Inflation expectations: Both US and euro area consumer inflation expectations have remained elevated, but off the peak levels. Markets' short-term expectations declined temporarily amid the SVB uncertainty but longer-term expectations remain stable.
US: US February CPI came out close to expectations (0.37%; forecast 0.4%), but core CPI surprised modestly to the upside (0.45% m/m; forecast 0.4%) driven by faster services inflation. While the shelter component explained part of the uptick, broader core services ex. shelter & healthcare picked to 0.8% m/m (from 0.65%). And even though core goods and energy CPI declined slightly, Fed is more focused on the stickier components of inflation, which still remain elevated. On a more positive note, average hourly earnings growth continued to ease to 0.24% m/m amid signs of recovering labour supply. That said, the still very high labour demand suggests that wage inflation pressures have not yet fully subsided.
Euro: Headline inflation continued to ease for a fourth month to 8.5% in February on the back of lower energy prices, but with core inflation coming in red hot and marking yet another record high at 5.6%. Declining input and producer prices suggest a peak in core inflation should not be too far off, but with the economy and labour market holding up better than expected, 'stickily' high core inflation will remain a worry for the ECB for some time yet. The growing importance of services prices in driving underlying inflation pressures is increasingly visible, with PMI manufacturing output prices falling rapidly, while services output prices remained elevated. Negotiated wage growth remained a modest 2.9% in Q4 22 (similar to Q3 22), but more high frequency wage measures based on jobs ads point to wage growth running closer to 5%, which is not consistent with the ECB's 2% inflation target.
China: CPI dropped to 1% y/y from 2.1%; hence China still has no inflation problem. PPI declined to -1.4% y/y from -0.8% y/y on the back of low commodity price inflation.
This publication has been prepared by Danske Bank for information purposes only. It is not an offer or solicitation of any offer to purchase or sell any financial instrument. Whilst reasonable care has been taken to ensure that its contents are not untrue or misleading, no representation is made as to its accuracy or completeness and no liability is accepted for any loss arising from reliance on it. Danske Bank, its affiliates or staff, may perform services for, solicit business from, hold long or short positions in, or otherwise be interested in the investments (including derivatives), of any issuer mentioned herein. Danske Bank's research analysts are not permitted to invest in securities under coverage in their research sector.
This publication is not intended for private customers in the UK or any person in the US. Danske Bank A/S is regulated by the FSA for the conduct of designated investment business in the UK and is a member of the London Stock Exchange.
Copyright () Danske Bank A/S. All rights reserved. This publication is protected by copyright and may not be reproduced in whole or in part without permission.
Recommended Content
Editors’ Picks

AUD/USD: Door open to extra losses
AUD/USD remained on the back foot on Tuesday, down for the third day in a row and retreating to five-day lows near the key 0.6500 support, always amid the resurgence of the strong demand for the US Dollar, this time underpinned by higher US inflation readings in June.

EUR/USD: Further weakness could extend to 1.1460
On Tuesday, the EUR/USD resumed its negative trend by falling below the crucial support at 1.1600 the figure and reaching fresh three-week lows against the background of a stronger Greenback. So far in July, the pair has only closed higher on two occasions.

Gold's selling pressure picks up pace, focus on $3,320
Gold prices now lose the grip and prompt the precious metal to retreat to daily troughs near the $3,320 mark per troy ounce. The increasing selling pressure around the yellow metal comes in response to a stronger US Dollar, rising US yields across the curcve, and the idea that the Fed might remain cautious for longer.

Ripple Prediction: XRP eyes breakout past $3.00 amid 'Crypto Week'
Ripple (XRP) drops below $3.00 on Tuesday, exchanging hands at $2.87 during the American session. The volatility follows XRP's rally, which tagged a weekly high of $3.03 the previous day, reflecting investors' desire to de-risk in the broader cryptocurrency market.

China’s first-half growth remains on track, though activity data signals caution
China's second-quarter GDP beat forecasts again with a 5.2% year-on-year growth, driven by strong trade and industrial production. Yet sharper-than-expected slowdowns in fixed-asset investment and retail sales and falling property prices are a concern.

Best Brokers for EUR/USD Trading
SPONSORED Discover the top brokers for trading EUR/USD in 2025. Our list features brokers with competitive spreads, fast execution, and powerful platforms. Whether you're a beginner or an expert, find the right partner to navigate the dynamic Forex market.