Eurozone inflation update

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A large number of inflationary pressures are emerging

Consumer price inflation in the Eurozone is expected to continue to rise in August, with a year-on-year growth of 2.2% in July, higher than the 1.9% in the previous month and the highest level since 2018.

A survey conducted by Reuters before the release of the data on Tuesday predicted that the euro zone inflation rate in August will rise to 2.8%, the highest level since 2012. Apparel dropped sharply in August last year.

He also pointed out that as companies reopened, but companies are still affected by reduced production capacity, there has been “some real inflationary pressures” in the euro area, especially in the tourism industry.

Balboni predicts that the Eurozone inflation rate will reach a peak of 3.3% in November and then fall back in 2022. This is much higher than the European Central Bank’s 2.6% forecast for the last quarter of this year. This is attributed to the reversal of German value-added tax, interest rate cuts, rebound in energy costs and the impact of supply chain disruptions on input prices.

Many economists said that high inflation rates are not expected to lead to any tightening of monetary policy, at least for now. Barboni stated that the European Central Bank will “ride through the surge in inflation and stick to its highly accommodative monetary stance”.

Mateusz Urban, an economist at the Oxford Economics Institute, agrees that “the European Central Bank’s assessment of the recent acceleration in overall inflation is temporary” because he expects that supply will gradually catch up with demand and the base effect will gradually disappear. He pointed out, “Although the supply bottleneck is still unresolved and the labor market of the entire group is recovering rapidly, the potential price pressure in the Eurozone is still not great.” Valentina Rome

Have supply chain issues and the coronavirus put further pressure on China’s factory sector?

July is a difficult month for the Chinese economy, and August looks equally bad or even worse. This week, investors focused on the country’s first major economic indicator of the month in the form of the country’s official manufacturing purchasing managers’ index.

The manufacturing data for July was only 50.4, which was only slightly higher than the 50-point threshold that distinguishes growth from contraction. August brought a series of new disruptions, including a lockdown to contain the outbreak of a variant of the Delta coronavirus, which disrupted the supply chain and forced the partial closure of Chinese ports. The severe flooding also affected production.

The July data has been sufficient for many economists to lower their forecasts for China’s annual economic growth. Imports of major commodities have fallen, while retail sales growth, credit growth and industrial production have all slowed down significantly. The poor performance in August may further curb expectations and curb enthusiasm for Chinese assets.

Khoon Goh, head of Asia Research at ANZ Bank, said: “In the context of extreme weather conditions and the recovery of the local Covid-19 epidemic, China’s business momentum may continue to slow in August.” Goh said that the domestic recovery is expected to weaken and The suppression of other signs, the decline in steel production, “all of which imply that the commercial momentum of the manufacturing industry is weakening.”

The median estimate of economists surveyed by Bloomberg shows that China’s manufacturing PMI will fall slightly to 50.1 in August. As some analysts have predicted that Beijing will begin to relax its policies in the fourth quarter after the difficult period in July, if this month’s factory activity data is lower than expected, the pressure to relax its policies may be even greater. Hudson Lockett

Is the recovery of the US labor market gaining momentum?

On Friday, the state of the US labor market will become clearer, which will determine when the Fed will begin to shrink some of the emergency stimulus measures announced this year.

Last month’s report showed that the severe shortage of workers that hindered the economic recovery has begun to ease. Nearly 950,000 jobs were created in July, pushing the unemployment rate to 5.4%.

Although this still adds nearly 6 million more unemployed Americans compared to February 2020 before the pandemic, these gains represent an important improvement in the intermittent healing process. Policymakers said that employers have been working hard to fill record job vacancies due to childcare issues, concerns about contracting the new crown virus, and increased employment benefits, and economists expect some of these problems to be further alleviated in August.

A consensus forecast compiled by Bloomberg shows that 750,000 jobs will be added this month, and the unemployment rate will drop further to 5.2%.

The Federal Reserve has pledged to purchase US$120 billion in U.S. Treasury bonds and agency mortgage-backed securities every month until it achieves “substantial further progress” in achieving an average inflation rate of 2% and maximizing employment. The recent rise in US consumer prices has convinced many central bank officials that the first of these thresholds has been reached, but the slowdown in the labor market recovery hinders immediate adjustments to bond purchase programs.

Investors generally expect the Fed to signal in September that the economy will continue to move towards its goals, but will not announce any “cutbacks” before November or December.

The recent surge in coronavirus cases related to the more contagious variant of the Delta coronavirus may delay the timetable, but there is a lot of uncertainty about its economic impact. Colby Smith