Archive

EA: False Dawn For Disinflation

• A surprise rise in EA inflation to 2.2% in November meant October’s long-awaited dip was a false dawn for a disinflationary consensus exceeded by 0.4pp since June.
• The accumulated extent and the increase in service inflation to 3.5% are concerning, but the latest news was narrowly concentrated in Greece, with other errors being minor.
• Stronger underlying momentum into year-end is preventing the January base effects from driving it significantly below target. The ECB’s good place isn’t breaking dovishly.

By Philip Rush

HEM: Dec-25 Views & Challenges

• Volatile markets and policy guidance washed out, with pricing and forecasts little changed on the month.
• Bailey is biased to ease, but the BoE is awakening to its inflation problem. It should cut less than dovishly priced.
• Higher unemployment could move beyond a structural shift from policy to signal a less elevated neutral rate.

HEW: Slow Shovels

• UK fiscal policy had an even smaller hole to fill than we expected, with the work to fill it in delayed until the election. There is no dovish pressure on the BoE from this.
• European data releases were relatively resilient again, with household lending and business sentiment broadly increasing. National inflation surprises were offsetting.
• Next week’s Euro area flash HICP is still tracking 2.1% in our forecast. Final PMI releases and the BoE’s decision maker panel survey results are our other release highlights.

By Philip Rush

BOK: Rate Cut Hopes Damped by Stickier Inflation

• The BOK maintained 2.5% rates as the consensus expected. Upward inflation revisions to 2.1% (2025) and 2.1% (2026) signal stronger price persistence than previously forecast, increasing rate-cut caution.
• Policy remains data-dependent with the "possibility" of cuts only after material disinflationary evidence emerges. Financial stability risks around housing and household debt levels now drive policy constraints more than growth concerns.
• Exchange rate depreciation and sticky service inflation create headwinds against achieving the 2% target, likely keeping rates elevated through early 2026 despite modest growth recovery expectations of 1.8%.