Did European Inflation Just Peak?

On the heels of a major tumble in German PPI last week…

Did European inflation just peak pic.twitter.com/8L7eCpOV5Q

— zerohedge (@zerohedge) November 21, 2022

Germany’s headline CPI just fell 0.5% MoM (notably worse than the 0.2% decline expected) – its biggest monthly decline since Dec 2020, pulling the YoY CPI down from 10.4% to 10.0% with factors including energy costs being the driver of the drop in prices.

Source: Bloomberg

In fact, the ‘deflationary’ impulse is everywhere across Europe this morning with Spanish CPI rising less than expected (+6.6% YoY vs +7.1% YoY exp) as consumer prices fell 0.1% MoM (for the fourth straight month); all the regional German CPIs tumbled MoM (Hesse -0.4% MoM), Baden Wuerttemberg -0.2% MoM, Bavaria -0.3% MoM,Brandenburg -0.5% MoM, and Saxony -0.3% MoM); Italian PPI tumbled 4.3% MoM; and Belgium’s CPI fell to 10.63% in the 12 months to November from 12.27% in October.

And while all of these may be positive signs for some (ECB tightening pressure may be relieved), it is doing nothing for European Industrial Confidence which tumbled more than expected to -2.0 – the lowest since Jan 2021…

Source: Bloomberg

Inflation data for the 19-nation euro zone are due tomorrow, with economists also estimating a slight moderation – the first in 18 months.

Goldman has downgraded their Euro area headline inflation forecast to 10.84%yoy, from 11.00%yoy previously, and marked down slightly their core inflation tracking estimate by 3bp to 4.98%yoy.

That reading will be crucial as ECB officials weigh a third straight 75 basis-point hike in borrowing costs or a smaller half-point move before a likely recession.

For now, the odds of a 75bps hike In December have tumbled notably.