Realized services inflation continues cooling

Overview: Underlying inflation continues to moderate both in the euro area and in the US. Inflation pressures ease gradually with weak goods inflation and in the case of the US, a more balanced job market. In the euro zone, wage growth remains elevated but is also now cooling. The US elections drove a modest uptick in markets’ inflation expectations, but we do not expect the result to derail the Fed from cutting in the near-term. Oil prices have moved lower despite the geopolitical tensions. We continue to forecast gradual disinflation towards H1 2025.

Inflation expectations: Market-based inflation expectations have turned lower after rising modestly following the US election results. Survey-based expectations rose modestly in the US, but most measures remain close to the 2% target.

US: November CPI landed close to consensus expectations in both headline (+0.3% m/m SA & 2.7% y/y) and core (0.3% m/m SA & 3.3% y/y) terms. On double-digit level, inflation accelerated slightly from October, but the pick-up was largely driven by volatile core goods and food prices, which could be influenced by firms preparing for tariffs. Importantly, broader services price pressures continued moderating. Rent and owners’ equivalent rent (OER) inflation slowed down sharply, and also non-housing services inflation cooled with the exception of hotel prices. We think the data remains consistent with further rate cuts from the Fed.

Euro: Euro area HICP inflation rose to 2.3% y/y in November as expected from 2.0%. The increase in headline inflation was mainly due to base effects on energy inflation, while core inflation remained unchanged at 2.7% y/y, below expectations of a rise to 2.8%. Most importantly, service prices only increased by around 0.10% m/m seasonally adjusted, as a positive sign for the ECB. Our 3m/3m SAAR measure of services inflation momentum declined to 2.7% in November from 3.4% and core inflation momentum hit 2% for the first time since 2021. Hence, the trend lower in momentum of underlying inflation continued in November, which supports further rate cuts by the ECB.

China: November CPI declined from 0.3% y/y to 0.2% y/y while core CPI rose to 0.2% y/y from 0.3% y/y. PPI increased to -2.5% y/y from -2.9% y/y

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