Danske Research Team
Danske Bank A/S
Overview: Underlying inflation has moderated in the US and is also more wellbehaved in euro area. Inflation pressures ease gradually with weak goods inflation and in the case of US, cooling job market and lower wage growth. In the euro zone, wage growth remains sticky despite some easing in the latest Q2 data. Concerns of slowing global growth have driven oil and metal prices lower, which has sharply weighed on markets’ short-term inflation expectations. We expect the ECB to cut rates on a quarterly basis and the Fed in every meeting until June.
Inflation expectations: Market-based short-term inflation expectations have declined with global oil prices. Consumers’ inflation expectations have also moderated, but more gradually. The level of most inflation expectations measures has now returned close to pre-pandemic averages.
US: The August CPI was close to expectations on headline level (+0.2% m/m SA & 2.5% y/y; July +0.2% / 3.2%). Core inflation was slightly faster than expected (+0.3% m/m SA & 3.2% y/y; July +0.2% / 3.2%), but the uptick was mostly driven by owners’ equivalent rent (OER). Contribution from other services sectors, core goods, food and energy were close to expectations. As the OER lags changes in the rental market by 10-11M, the upside surprise will not derail the Fed from cutting rates next week, but the reading still supports our case for only a 25bp move.
Euro: Dropping to a three-year low, headline inflation for August was 2.2% y/y – in line with expectations – driven mainly by base effects in energy prices. The underlying price pressure continued to be sticky as core inflation stood unchanged at 2.84% y/y, with the monthly measure at 0.27% m/m SA. This attributed to continued strong services inflation at 0.42% m/m SA (4.15% y/y) stemming from elevated cost pressures amid high wage growth and the strong labour market. Coupling this with rising goods selling price expectations, we foresee core inflation to only gradually decline and hit 2% in Q4 2025, while headline inflation could hit 2% next month and is expected to average 2.1% in 2025.
China: August CPI rose from 0.5% y/y to 0.7% y/y but core CPI dropped to 0.3% y/y from 0.4% y/y, a two-year low. PPI dropped to -1.8% y/y from -0.8% y/y.
This publication has been prepared by Danske Bank for information purposes only. It is not an offer or solicitation of any offer to purchase or sell any financial instrument. Whilst reasonable care has been taken to ensure that its contents are not untrue or misleading, no representation is made as to its accuracy or completeness and no liability is accepted for any loss arising from reliance on it. Danske Bank, its affiliates or staff, may perform services for, solicit business from, hold long or short positions in, or otherwise be interested in the investments (including derivatives), of any issuer mentioned herein. Danske Bank's research analysts are not permitted to invest in securities under coverage in their research sector.
This publication is not intended for private customers in the UK or any person in the US. Danske Bank A/S is regulated by the FSA for the conduct of designated investment business in the UK and is a member of the London Stock Exchange.
Copyright () Danske Bank A/S. All rights reserved. This publication is protected by copyright and may not be reproduced in whole or in part without permission.
Recommended Content
Editors’ Picks
AUD/USD oscillates in a range below 0.6300 amid mixed cues
AUD/USD struggles to build on the previous day's positive move and remains below the 0.6300 mark ahead of Trump's tariffs announcement later this Wednesday. In the meantime, the cautious market mood lends some support to the safe-haven USD and caps the upside for the pair.
USD/JPY remains below 150.00 as traders await Trump's tariffs
USD/JPY regains positive traction on Wednesday as receding bets that the BoJ would raise the policy rate at a faster pace undermine the JPY. Spot prices, however, remain confined in the weekly range as traders wait on the sidelines ahead of Trump's reciprocal tariffs announcement.
Gold price holds comfortably above $3,100 amid trade jitters
Gold price attracts some dip-buyers following the previous day's retracement slide from the record high amid persistent safe-haven demand, bolstered by worries about a tariff-driven global economic slowdown. Furthermore, Fed rate cut expectations and the lack of USD buying interest offer additional support to the XAU/USD.
US Government to conclude BTC, ETH, XRP, SOL, and ADA reserves audit next Saturday
Bitcoin price rose 3% on Tuesday, as MicroStrategy, Metaplanet and Tether all announced fresh BTC purchase. However, BTC price is likely to remain volatile ahead of the anticipated disclosure of U.S. government crypto holdings, which could fuel speculation in the coming days.
Is the US economy headed for a recession?
Leading economists say a recession is more likely than originally expected. With new tariffs set to be launched on April 2, investors and economists are growing more concerned about an economic slowdown or recession.
The Best brokers to trade EUR/USD
SPONSORED Discover the top brokers for trading EUR/USD in 2025. Our list features brokers with competitive spreads, fast execution, and powerful platforms. Whether you're a beginner or an expert, find the right partner to navigate the dynamic Forex market.