Eurozone inflation remains unchanged in August
Eurozone inflation remains at 5.3%, leading analysts to speculate that the ECB may consider pausing its interest rate hikes in light of a slowing economy.
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Greece's inflation rate rose to 3.5% in July, but it still remains the sixth lowest among EU members, with higher inflation rates observed in other countries such as Belgium, Luxembourg, Spain, Cyprus, and Denmark; however, Greece does have the ninth highest inflation rate in food compared to other EU nations.
The Central Bank of Turkey is expected to continue its policy tightening, but doubts remain as to whether the pace of tightening will be sufficient, given the high inflation rate; meanwhile, the focus in the US is on the jobs market and the unemployment rate's impact on inflation, and pessimism reigns for the euro due to concerns about the ECB's ability to raise interest rates.
The spike in retail inflation has raised uncertainty for investors and savers, with expectations of interest rate cuts being pushed to the next fiscal year and the possibility of a rate hike. The Reserve Bank of India projects inflation to stay above 5% until the first quarter of 2024-25, and food price pressures are expected to persist. While inflation may impact stock market returns, gold and bank deposit rates are expected to remain steady.
The European Central Bank (ECB) faces a complex decision on whether to continue raising interest rates in September as eurozone businesses experience declines in outputs and new orders, with some experts suggesting a pause in rate hikes to ease pressure on the economy.
It may be too early for the European Central Bank to pause interest rate hikes now as an early stop in the fight against inflation could result in more pain for the economy later, according to Latvian policymaker Martins Kazaks.
President of the European Central Bank, Christine Lagarde, stated that interest rates in the European Union will need to remain high to combat inflation, despite progress being made, emphasizing the challenges posed by disruptions in the global and European economies.
Cleveland Federal Reserve Bank President Loretta Mester believes that beating inflation will likely require one more interest-rate hike in the U.S. and then pausing for a while, although she may reassess her previous view of rate cuts starting in late 2024, and she aims to set policy so that inflation reaches the Fed's 2% goal by the end of 2025 to prevent further economic harm.
German inflation beats forecasts, complicating the ECB's task, while US labor data eases and GDP is revised lower, causing the dollar to weaken and the euro to strengthen.
Euro zone growth is weaker than predicted, but the need for more rate hikes by the European Central Bank is not automatically voided, according to ECB board member Isabel Schnabel, who raised concerns about investors undoing the ECB's past work and the decline in real risk-free rates counteracting efforts to bring inflation back to target.
Euro zone inflation for August exceeded analysts' expectations, remaining unchanged from the previous month at 5.3%, posing a dilemma for the European Central Bank.
Euro zone inflation holds steady in August, but underlying price growth falls, complicating decisions for the European Central Bank as it considers a pause in rate hikes amid a slowdown in economic growth.
The account of the monetary policy meeting of the Governing Council of the European Central Bank held in July 2023 reported that members agreed on the need for a further 25 basis point rate hike to bring inflation back to target, although there were concerns about the slowdown in economic activity and risks to growth. There was also discussion on the transmission of monetary policy and the potential impact on the real economy.
US inflation remains above 3% as the cost of goods and services rose by 0.2% in July, prompting speculation that the Federal Reserve may freeze interest rates to manage inflation without causing a recession.
Consumer prices in the eurozone rose 5.3% on average this month compared to last year, with core inflation easing to 5.3%, potentially increasing pressure on the European Central Bank to raise interest rates.
The Reserve Bank of Australia is expected to keep its key interest rate unchanged at 4.10% as inflation slows, but economists anticipate a final hike in the next quarter.
The ECB expects core inflation to come down throughout the autumn as strong price increases from a year ago fall out of the data; however, energy and food prices are expected to remain bumpy, with inflation standing at 5.3% overall. The ECB emphasizes the need to contain the second-round effects of inflation and to make it clear that the current inflation episode is temporary. Additionally, the central bank does not believe that strategic price controls are the best way to fight inflation. The ECB's modeling approach is focused on assessing what is going on and using models to understand how it will play out, with the understanding that there are limitations to all models. Climate change and demographic transitions have implications for monetary policy, but the net impact on inflation is relatively contained. The ECB has managed to avoid peripheral spreads widening through its policy responses, including the pandemic emergency purchase program and pooled fiscal resourcing. In the future, short-term rates are expected to remain high for a while but come down in the later part of the decade, which helps contain spreads.
The Bank of Canada has decided to keep its benchmark interest rate at 5% amid signs of a slowing economy, but has not ruled out further rate hikes if inflationary pressures persist.
The Organisation for Economic Co-operation and Development (OECD) has stated that the European Union (EU) needs to strengthen the single market and maintain a restrictive monetary policy to address inflation and enhance the resilience of the European economy in the post-pandemic recovery. The OECD recommends that the European Central Bank (ECB) should raise interest rates to achieve its 2% inflation target, while also emphasizing the importance of protecting the single market, simplifying labor mobility, and avoiding further relaxation of state aid rules. Additionally, the OECD highlights the need for the EU to focus on green transition, combat financial crime, and accelerate the integration of electricity markets.
The euro zone's economy is expected to grow slower than previously forecasted due to high inflation and Germany slipping into recession, according to the European Commission.
Germany's economy is expected to contract by 0.4% in 2023 due to higher inflation, rising interest rates, and weaker consumer spending, making it the worst-affected major country in the eurozone, according to the European Commission. The overall eurozone economy is expected to expand by 0.8% in 2023 and 1.3% in 2024, leading to a potential halt in the European Central Bank's tightening of policy. Inflation in the eurozone is projected to average 5.6% in 2023.
The European Central Bank is expected to see inflation in the euro zone remain above 3% next year, which strengthens the case for an interest rate increase.
The European Central Bank is expected to maintain steady rates as economic activity in the euro area decelerates and inflation erodes disposable income, with uncertainty surrounding the impact of weaker growth on inflation.
The European Central Bank is facing a dilemma on whether to raise its key interest rate to combat inflation or hold off due to economic deterioration, with investors split on the likelihood of a rate hike.
The European Central Bank has raised key interest rates by 0.25 percentage points to help bring down inflation, although the economy is expected to remain weak for a while before slowly recovering in the coming years.
The European Central Bank has raised its main interest rate for the 10th consecutive time to tackle inflation, but indicated that further hikes may be paused for now, causing the euro to fall and European stocks to rally.
Bitcoin received a 2% boost as the European Central Bank hinted that its latest interest rate hike could be the last, leading analysts to question whether the ECB would tighten rates again in September.
Following the European Central Bank's record high interest rate hike to 4%, there is speculation about how long rates will remain at this level, with analysts predicting a 12-month pause before any cuts are made, while also considering the impact of rising oil prices on inflation expectations in Europe and the US. The Federal Reserve is expected to hold rates steady in September, but there are divided opinions on whether another hike will be delivered this year, with markets anticipating rate cuts in 2024. Similarly, the Bank of England is anticipated to make one final hike in September as it assesses inflation and economic indicators.
Euro zone consumer inflation in August remained more than twice the European Central Bank's target, with a year-on-year rate of 5.2%, although slightly lower than initially estimated, according to Eurostat.
UK inflation unexpectedly dips to 6.7% in August, sparking speculation of a pause in interest rate hikes from the Bank of England.
Inflation in Britain slowed for a third consecutive month in August, defying expectations of a rise due to higher fuel prices, with consumer prices rising 6.7 percent compared to the previous year, driven by slower increases in food prices and a decline in hotel room costs. Core inflation also fell more than anticipated, indicating a potential easing of inflationary pressures, though price growth remains uncomfortably high. The Bank of England is set to announce its decision on interest rates, with growing speculation that rates may be held steady due to signs of slowing inflation and a weak economy.
The Federal Reserve will continue raising interest rates until inflation decreases, even if it means more people losing their jobs, according to CNBC's Jim Cramer.
The U.S. Federal Reserve kept interest rates steady but left room for potential rate hikes, as they see progress in fighting inflation and aim to bring it down to the target level of 2 percent; however, officials projected a higher growth rate of 2.1 percent for this year and suggested that core inflation will hit 3.7 percent this year before falling in 2024 and reaching the target range by 2026.
The Bank of England has paused its interest rate hike campaign and kept the borrowing cost at 5.25% due to unexpectedly falling inflation in August, providing relief to UK households and potentially leading to cuts in mortgage rates. The decision was a close vote and the central bank hinted that borrowing costs would need to remain high for a sustained period to ensure a fall in inflation. Despite this, many analysts expect no further rate hikes.
Central banks around the world may have reached the peak of interest rate hikes in their effort to control inflation, as data suggests that major economies have turned a corner on price rises and core inflation is declining in the US, UK, and EU. However, central banks remain cautious and warn that rates may need to remain high for a longer duration, and that oil price rallies could lead to another spike in inflation. Overall, economists believe that the global monetary policy tightening cycle is nearing its end, with many central banks expected to cut interest rates in the coming year.
The euro zone economy is expected to contract this quarter and remain in recession as the impact of central banks' interest rate rises hampers growth, according to a survey by HCOB's flash euro zone Composite Purchasing Managers' Index (PMI), with Germany and France experiencing significant declines in business activity.