Euro area HICP to report a notable step down

Emily Nicol

Flash euro area inflation to take a notable step down in September as base effects continue to play out
It will be a busy week for top-tier euro area economic releases, which include the flash September inflation estimates (Friday), European Commission's economic sentiment survey results (Thursday) and bank lending numbers (Wednesday). Headline inflation will take a notable step down this month not least because base effects associated with last year’s heavily discounted German travel pass will fall out of the calculation. And base effects related to last year’s energy and food price shocks will more than offset the impact of the further rise in the price of auto fuel. In particular, we expect headline inflation to drop 0.9ppt to 4.3%Y/Y, which would be the lowest rate since October 2021. More importantly perhaps, we expect core inflation to moderate 0.4ppt to an eleven-month low of 4.9%Y/Y. Ahead of that release, the preliminary inflation estimates from Germany, Spain and Belgium are due for release on Thursday. The Commission’s economic surveys, also due that day, will provide an update on price expectations, which ticked slightly higher in August most likely in response to the higher oil price. Arguably of most interest in this release will be the extent of the slowdown in GDP growth implied by the headline economic sentiment indicator, which in August declined to 93.3, the lowest since November 2020 and more than 6½% below the long-run average. Other key sentiment indicators due this week include the German ifo business climate indices (today) and German and French consumer confidence survey results (Wednesday). Euro area monetary data (Wednesday) will illustrate the dampening impact of the ECB’s aggressive tightening cycle on bank lending.

UK bank lending figures to suggest ongoing weakness in mortgage lending
In a relatively quiet week ahead for UK economic releases, the data calendar kicks off today with the CBI’s distributive trades survey for September. Following the deterioration in last week’s flash PMIs, the retail survey is expected to show that sales remained well down on a year earlier, albeit the pace of decline will likely have moderated from August. However, the main releases this week will come on Friday, with the BoE’s latest monetary data arguably of most interest. While the average mortgage rate edged slightly lower in August, with mortgage approvals having weakened sharply in July and surveys suggesting that housing market activity slowed over the summer, we expect new mortgage lending to have remained very weak in August. Concerns about the economic outlook and higher borrowing rates might also limit demand for consumer credit. And we expect to continue to see households further shift deposits from lower-yielding overnight accounts to higher-yielding products. Friday will also bring updated national accounts figures for Q2. These are expected to confirm GDP growth of 0.2%Q/Q, supported by firmer household and government spending and a pickup in business investment. However, the ONS might well make significant revisions to the level of GDP in 2022 reflecting the application of the methodological changes that earlier this month led to a big upwards revision to the estimate of growth in 2021. Meanwhile, the latest balance of payments figures are expected to report a modest widening in the current account deficit amid a deterioration in the trade balance.

US personal spending set to be boosted by strong income growth and flattered by higher prices
In the US, a key focus this week will be Friday’s release of personal income and spending figures for August. A pick up in average hourly earnings and aggregate hours worked suggest a firm increases in personal income last month, with Daiwa America’s Lawrence Werther forecasting a rise of 0.5%M/M, which would be the strongest increase since January. Despite a decline in new vehicle sales, Werther also expects another solid increase in consumer spending (0.5%M/M), albeit growth is likely to have been inflated by higher prices. Indeed, while the anticipated pickup in the headline PCE price index (0.5%M/M) will in part reflect higher energy prices, the closely-watched core PCE deflator is also expected to have jumped 0.5%M/M, the most since January. Meanwhile, the advance durable goods orders (Wednesday) and goods trade figures (Friday) will provide an update on activity in the middle of Q3, while updated national accounts figures for Q2 are expected to suggest that growth was little changed from the previous estimate of annualised rate of 2.1%Q/Q. This release will also include benchmark revisions from 2013 through to Q123. Meanwhile, housing market indicators due for release include the FHFA and S&P Corelogic Case-Shiller home indices for July and new home sales figures for August (tomorrow), as well as existing home sales numbers for August (Thursday).

Tokyo inflation figures in focus at the end of the week, along with the latest labour market, retail sales and IP data
While BoJ Governor Ueda once again flagged ongoing uncertainties about the outlook and that the sustainable and stable achievement of the 2% inflation target is not yet in sight, focus this week will be on Japan’s inflation releases. In particular, after national figures published last Friday showed that the moderation in the headline inflation rate was less than expected, down 0.1ppt to 3.2%Y/Y, while the internationally comparable core measure of inflation (excluding food and energy) moved sideways at 2.7%Y/Y, tomorrow will see the BoJ publish various other measures of underlying inflation, including the trimmed mean and mode CPI estimates. Friday will also bring the one-month ahead Tokyo CPI release for September. This is expected to show headline inflation easing a further 0.1ppt to 2.8%Y/Y, which would be the lowest reading for a year and 1.6ppts below January’s peak. Friday will also bring the latest employment report, retail sales and industrial production data for August. While retail sales are expected to have risen for a second successive month, industrial production is forecast to have declined for a second month in a row.

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