Eurozone inflation jumps ahead in August
After something of a delayed reaction, Eurozone inflation has begun to pick up decisively in August. Headline HICP inflation jumped by +0.4% on the month, with both core and headline inflation coming in above expectations:
- Headline Eurozone inflation (YoY) jumped to +3.0% (from 2.2% in July) and way ahead of the +2.7% consensus forecast.
- Core Eurozone inflation (YoY) increased to +1.6% (from +0.7% in July) which was above the +1.5% consensus forecast.
The headline reading of 3.0% is also a 10 year high, whilst core inflation at +1.6% is the highest since June 2012.
The jump in core inflation will raise some eyebrows at the European Central Bank, however, the latest ECB staff projections saw core inflation of around +1.9% this year, before falling back to +1.4%/+1.5%.
A higher than expected increase should not come as a complete surprise though as this has been a feature of other major economies before inflation begins to roll over in the perceived “transitory” manner. However, with supply chain issues still a factor across the Eurozone, this is unlikely to be the end of the rise though. Furthermore, the ECB does not expect inflation to peak until November.
Initial Market Reaction
This data helps to reinforce the existing outlook across markets today
German Bund yields have moved higher, (by around +1 basis point on the 10 year yield), which should also help to support the EUR (EUR/USD is already being supported by a weakening USD currently).
We have also seen the DAX jump higher by c. +25 ticks.