The ECB headache continues as inflation remains a worry

FRANKFURT (July 29)  The flash reading of the euro area CPI has hit another record putting more pressure on the ECB to hike in larger increments. The ECB target is still 2% and consumer price growth in the 19 countries sharing the euro currency accelerated to 8.9% in July from 8.6% a month earlier, far above expectations for 8.6%. Once again enery prices remain the main culprit with Russia effectively using gas prices as a weapon. Food prices also increased at a very high rate. Money markets are now pricing a 35bps rate hike for September, suggesting that investors are split between a 25 and a 50bps move.

The report said, "Looking at the main components of euro area inflation, energy is expected to have the highest annual rate in July (39.7%, compared with 42.0% in June), followed by food, alcohol & tobacco (9.8%, compared with 8.9% in June), non-energy industrial goods (4.5%, compared with 4.3% in June) and services (3.7%, compared with 3.4% in June)"

Elsewhere, in the second quarter, seasonally adjusted GDP increased by 0.7% in the EU and by 0.6% in the EU, compared with the previous quarter, according to a preliminary flash estimate published by Eurostat. This will come as some solace but the German GDP reading was not to encouraging for the ECB.  The data published by Germany's Destatis showed on Friday that the German economy grew at an annualized pace of 1.4% in the second quarter following the 3.8% expansion recorded in the first quarter.

The German statistics office said “Difficult global economic conditions with the ongoing corona pandemic, disrupted supply chains, rising prices, and the war in Ukraine are clearly reflected in economic developments,”

German GDP SA (Q/Q) Q2 P: 0.0% (est 0.1%; prev 0.2%)
- GDP NSA (Q/Q) Q2 P: 1.5% (est 1.8%; prev 4.0%)

German Unemployment Change Jul: 48K (est 17.0K; prev R 132.0K)

Eurozone CPI Estimate (Y/Y) Jul: 8.9% (est 8.7%; prev 8.6%)

Eurozone GDP SA (Q/Q) Q2 A: 0.7% (est 0.2%; prev R 0.5%)

KITCO