March 05, 2021
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Fiscal conquering monetary hegemony

  • The close relationship between national debt and wars is well-established. Although the current Covid crisis is not a war in the conventional sense, the government has extended its authority in a manner seldom seen outside a conflict situation.
  • War and similar crises shift the dial on economic policy towards a greater role for fiscal over monetary policy in demand management. In short, they push the envelope on what is thought possible and desirable vis-à-vis the role of the state.
  • Monetary policy’s space to stimulate is increasingly defensive as it accommodates fiscal stimulus up until the point it becomes inconsistent with the target. The fiscal hegemony is now de facto and de jure and this will determine relative economic performance.

March 02, 2021
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EA: Flash HICP as flat as a spring pancake

  • Flash HICP inflation was 0.9% y-o-y in Feb-21, unchanged from January and in line with our forecast and the final consensus. Non-energy industrial goods balanced downside news in energy prices. Our HICPxT forecast for Feb-21 is close to rounding up from 0.8%.
  • Weighting changes for 2021 are set to continue distorting data through at least 2021, likely causing multiple surprises. The Jan-21 one should ward-off an ECB rate cut.

February 23, 2021
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EA: echoes from inflation’s remix

  • Jan-21 inflation was confirmed at 0.9% y-o-y in the euro area, with the ex-tobacco index at 0.8%, as expected. Weighting changes caused 44bps of the 118bp EA rise, but the shock washes out in our forecast for the annual rate in Dec-21.
  • Each of the next three monthly inflation rates is depressed by the new basket weights with only three releases currently rounding to an impact less than 0.1pp in 2021. Shocks will inevitably shift the magnitudes and the consensus is set to suffer regular surprises.