Euro: ECB vigilance and inflation risks – BNY

BNY’s Geoff Yu highlights that European inflation is firming, with French and Spanish data reinforcing concerns for the European Central Bank (ECB). Governing Council members Kazaks and Schnabel are framed as hawkish voices, stressing the need to prevent persistent price pressures. The report notes EUR/USD softness alongside stronger Eurozone sentiment indicators, suggesting markets are weighing higher inflation against still-fragile growth.

ECB hawks eye persistent price pressures

"The latest national data reinforce the concern around headline inflation: French CPI accelerated to 2.4% y/y in August from 2.1%, while Spanish CPI jumped to 4.3% from 3.6%, largely on stronger energy and fuel prices."

"European inflation is moving higher, strengthening the case for ECB vigilance. French HICP accelerated to 2.7% from 2.4%, while Spanish national CPI rose to 4.3%, slightly above consensus, although harmonized inflation was marginally softer than expected at 4.5%. Both direction and level will be seen as unacceptable to the Governing Council."

"ECB Governing Council member Martins Kazaks warned that above-target inflation cannot be allowed to become entrenched and said another rate increase in September is a considerable possibility."

"ECB hawk Isabel Schnabel speaks in Wyoming today, and we expect her to reinforce the need to preempt inflation persistence, despite limited evidence of second-round effects so far."

"Euro area economic sentiment for August rose 1.3 points to 98.4, while the EU indicator increased 1.0 point to 98.2, bringing both closer to their long-term average of 100."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)