Eurozone inflation in August decelerates, mostly due to base effect

Erste Bank Research Team Erste Bank

On the radar

Manufacturing PMI Indices are due Monday morning in Czechia, Hungary, Poland and Romania (at 48.4 in August, released at 8 AM CET).
At 11.00 AM CET July’s industrial output growth will be released in Croatia
At noon CET, Serbia will present the 2Q24 GDP structure.

Economic developments

Euro area annual inflation is expected to be 2.2% in August 2024, down from 2.6% in July. Looking at the main components of euro area inflation, services is expected to have the highest annual rate in August (4.2%, compared with 4.0% in July), followed by food, alcohol & tobacco (2.4%, compared with 2.3% in July), while energy, on the contrary, should have negative contribution to headline figure (decline by -3.0% y/y, compared with 1.2% y/y growth in July). However, this is due to a temporary base effect and, most likely, dampening effect of energy prices on inflation should be over by the end of the year. As far as the region is concerned, flash estimates of August inflation were published in Croatia, Poland, Slovenia and Slovakia (HICP footprint). In Croatia and Slovenia we have seen further easing of inflation toward 1.8% y/y and 0.9% y/y, respectively. In Poland and Slovakia, on the other hand, inflation rate increased marginally in August. In Poland, the elevated annual figure is attributed to the de-regulation of energy prices in July.

Market movements

Fitch affirmed Romania’s BBB- with stable outlook rating. Some of Romania’s strengths highlighted by Fitch are: EU membership and related capital inflows that support income convergence, external finances, and macro stability. At the same time, large and persistent twin budget and current account deficits (CAD) relative to peers, high budget rigidities, and a fairly high net external debtor position are some of the most important shortcomings. Should there be no meaningful fiscal consolidation plans in sight after a new government is formed later this year we do not exclude a negative outlook change at the start of next year but that is not our baseline scenario. We expect Moody’s and S&P to also decide to affirm Romania’s ratings later this year. The FX market was quite stable throughout the week and the week-to-week changes were rather marginal. CEE bond markets exhibited mixed trends last week. The ROMGB yield curve slightly edged down, while CZGB and POLGB yield curves moved up. In Czechia, Ministry of Finance plans for fiscal consolidation in 2025 that is election year. A reduction of deficit to CZK 230 billion is considered, down from the 2024 target set at CZK 252 billion.

Download The Full CEE Macro Daily

Author

Erste Bank Research Team

Erste Bank

At Erste Group we greatly value transparency. Our Investor Relations team strives to provide comprehensive information with frequent updates to ensure that the details on these pages are always current.

EUR/USD hits two-day highs near 1.1820

EUR/USD picks up pace and reaches two-day tops around 1.1820 at the end of the week. The pair’s move higher comes on the back of renewed weakness in the US Dollar amid growing talk that the Fed could deliver an interest rate cut as early as March. On the docket, the flash US Consumer Sentiment improves to 57.3 in February.

GBP/USD reclaims 1.3600 and above

GBP/USD reverses two straight days of losses, surpassing the key 1.3600 yardstick on Friday. Cable’s rebound comes as the Greenback slips away from two-week highs in response to some profit-taking mood and speculation of Fed rate cuts. In addition, hawkish comments from the BoE’s Pill are also collaborating with the quid’s improvement.

Gold climbs further, focus is back to 45,000

Gold regains upside traction and surpasses the $4,900 mark per troy ounce at the end of the week, shifting its attention to the critical $5,000 region. The move reflects a shift in risk sentiment, driving flows back towards traditional safe haven assets and supporting the yellow metal.

Crypto Today: Bitcoin, Ethereum, XRP rebound amid risk-off, $2.6 billion liquidation wave

Bitcoin edges up above $65,000 at the time of writing on Friday, as dust from the recent macro-triggered sell-off settles. The leading altcoin, Ethereum, hovers above $1,900, but resistance at $2,000 caps the upside. Meanwhile, Ripple has recorded the largest intraday jump among the three assets, up over 10% to $1.35.

Three scenarios for Japanese Yen ahead of snap election

The latest polls point to a dominant win for the ruling bloc at the upcoming Japanese snap election. The larger Sanae Takaichi’s mandate, the more investors fear faster implementation of tax cuts and spending plans.

XRP rally extends as modest ETF inflows support recovery

Ripple is accelerating its recovery, trading above $1.36 at the time of writing on Friday, as investors adjust their positions following a turbulent week in the broader crypto market. The remittance token is up over 21% from its intraday low of $1.12.