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Could the latest data in Europe give the ECB a headache

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(Kitco News) - Data in Europe has been pretty decent this morning although it could pose a problem for the ECB. Euro Area prelim inflation has reached 3% in August. This is above the 2% target that the ECB has set. It has to be said that the ECB noted they will accept an overshoot but with the general situation in Europe improving many analysts are wondering how long the central bank can hold out before acting. 

The ECB could act by reducing the Pandemic stimulus first. This would be the most acceptable way in the opinion of many analysts. ECB chief economist Philip Lane argued that these inflation surprises still did not challenge his views about the temporary nature of price pressures as wage growth, a necessary component of durable inflation, remained muted.

The next ECB meeting is on 9th September and must decide on the pace of its bond purchases over the coming quarter. While some adjustment is possible, Lane argued that it would be at the margins as the ECB is committed to maintaining “favourable financing conditions”.

Adding to this the employment situation in Germany seems to be improving too. A decline of 53K (unemployed persons) was more than most analysts had been expecting and the number brings the level to the lowest point since the pandemic began. Having said that, infections are back on the rise again but hospitalisation are more controlled due to the number of people being vaccinated (60% of the adult population). There is a national election on 26th September which could throw a spanner in the works but the SPD look to be leading in the polls so it could be "as you were" for the nation. 

German Unemployment Change (Aug) -53K vs exp -40K prev -90K

German Unemployment Rate (Aug) 5.5% vs exp 5.6% prev 5.6%

CPI (YoY) (Aug) 3.0% vs exp 2.7% prev 2.2%


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