ECB central bank forum to be closely watched

Emily Nicol
Chris Scicluna

Euro area flash HICP expected to report a further moderation in headline inflation, but slight uptick in core inflation
In a busy week for euro area economic events, the key focus will be the flash inflation estimates for June (Friday). Headline inflation is expected to have fallen sharply further this month, due not least to base effects related to energy and food. Indeed, our forecast is for a drop of 0.7ppt to 5.4%Y/Y, which would be the lowest rate since January 2022. But while core goods inflation is also expected to have moderated, services inflation is expected to have accelerated due not least to base effects associated with last year’s highly discounted German travel pass. As such, we forecast core inflation to edge slightly higher in June, by 0.2ppt to 5.5%Y/Y, albeit remaining below March’s peak (5.7%Y/Y). Flash releases from Italy (Wednesday), Germany and Spain (Thursday) and France (Friday) are also due.

The Commission’s business and consumer survey results (Thursday) will provide further insight into households’ and firms’ price expectations, as well as an update on economic growth at the end of the second quarter. While Friday’s flash PMIs suggested a marked slowing in economic momentum, the Commission’s headline economic sentiment index had already taken a notable step down in May and so might be more stable in June. Germany’s ifo business survey (today) will offer further insights into recent momentum. Other key releases in the coming week include euro area bank lending (Wednesday) and unemployment numbers (Friday).

Beyond the economic data, the ECB’s central bank forum in Sintra (Wednesday and Thursday) will also be closely watched for any further insights into the near-term path for policy. ECB President Lagarde will kick off the event with a keynote speech on Wednesday morning, while her central bank governor peers Powell, Ueda and – following last week’s bumper 50bps BoE rate hike and further horrible upside surprise to UK CPI – Bailey will join her for a panel discussion on Thursday afternoon.

Tokyo CPI figures expected to report core inflation rose to a new 41-year high in June
After Japan’s CPI release on Friday saw the BoJ’s preferred measure of core inflation (excluding fresh food and energy) rise to the highest in more than four decades in May, the BoJ will publish (tomorrow) other estimates of underlying price pressures, including the trimmed mean and mode CPI. The one-month ahead Tokyo CPI figures for June (due Friday) are expected to show the headline rate edged slightly higher, by 0.2ppt to 3.4%Y/Y, albeit still 1ppt below January’s peak, with the core rate (excluding fresh foods and energy) expect to rise to a new 41-year high of 4.0%Y/Y.

The back end of the week will also bring a deluge of top-tier data for May, including unemployment, retail sales, and industrial production. Factory output is forecast to have declined around 1%M/M, following three consecutive increases. But while retail sales are forecast to have increased in May, this might fail to reverse the decline in April (-1.1%M/M). In addition, the BoJ will publish it latest flow of funds figures for Q1 (tomorrow).

UK bank lending numbers likely to report a third successive net repayment of mortgage debt
The data focus in the UK this will be the BoE’s bank lending figures for May (Thursday). These might well show a (likely temporary) modest pickup in mortgage approvals last month. But households are expected to have made a third successive net repayment of mortgage debt for the first time since the series began in 1990. Ahead of this, the week will bring the release of the CBI’s distributive trades survey (today) and BRC shop price index (tomorrow), which are likely to illustrate that high inflation on the High Street continues to dampen consumer spending on goods.

Revised Q1 GDP figures (Friday) are expected to confirm modest growth of 0.1%Q/Q, as stronger private investment offset a decline in government consumption and lacklustre household consumption. This release will be accompanied by the latest balance of payments numbers, which are expected to report a widening in the current account deficit (by around £5bn to £7.5bn), albeit remaining well below the record high a year ago (£50.5bn).

US personal income, spending and PCE deflators in focus this week
In the US, this week will a number of key releases, including arguably most notable the latest monthly personal income and spending numbers for May (Friday), which will include the closely watched PCE deflators. Income is expected to be boosted by a pickup in average hourly earnings, strong rental income growth and higher interest rates suggests, although Daiwa America economist Lawrence Werther forecasts a slightly moderation in the pace of growth in May to 0.2%M/M. A similar pace of increase is expected for spending, with a decline in vehicle sales likely to act as a restraint. Meanwhile, consistent with the latest inflation figures, the core PCE deflator is forecast to have risen 0.4%M/M.

Ahead of this, the week will bring the advance durable goods orders (tomorrow) and goods trade data (Wednesday) for May. Meanwhile, the Conference Board’s consumer confidence survey for June (tomorrow) will come alongside a range of housing market indicators, including new home sales, FHFA and Case-Shiller price indices. 

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