Investors will be monitoring the Euro area’s consumer price index reading that will be released on November 30th, 2022. The next reading is forecasted to read 10.4%, down 0.2% from October’s 10.6%. As well known, the CPI index measures the change of prices for products and services over a specific time, and it is a key barometer for measuring purchasing trends as well.
Since July 2022, the European central bank has been following an aggressive tightening policy by raising interest rates aiming to tame inflation; the interest rate in the EU is currently 2%, with October and September characterized by the highest consecutive pace of interest rate increase by 75 basis points each (Fig1). This is justified by energy market uncertainty and volatility, currently contributing to 41.5% of headline inflation in October. Moreover, the EU unemployment rate is at a record low of 6.6% as per the latest data for September, as ample stimulus supported the labor market to recover from the pandemic.
Converging with the unemployment rate, the ZEW sentiment indicator improved to -38,7 in November, up from -59.7 in October; aside of that, the wage growth rate scored 4.1% YoY in the second half of 2022, outpacing March 2020’s 3.910% as stated by Trading Economics website.
If the next reading meets the forecast of a modestly lower CPI YoY, the above economic data indicates that the ECB would surely maintain the tightening strategy while market participants (Fig2) will be addressing the level of aggressiveness on the upcoming rate hike putting into consideration the German 2 years and 10 years “bund” yield curve inversion this month which didn’t take place since mid-1991.
As announced, the EU is set to ban Russian oil imports on December 5th and refined products on February 5th, 2023; accordingly, this would cause energy supply disruption in the region as alternative energy sources wouldn’t be enough to fill the gap. Pilling up on the energy issue, OPEC is signaling a negative review on oil demand in 2023, which might drive the cartel to decrease production thus, we would be questioning upcoming EU headline CPI readings.
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