Intesa Sanpaolo : Euro area inflation: the „pause“ recorded in April in the downward trend from last autumn’s peaks should prove temporary.
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Weekly Economic Monitor – 19. May 2023
Intesa Sanpaolo – Research Department
Energy could return to its negative contribution to overall inflation in the coming months, although the decline could be uneven as it is linked to the timing of the exhaustion of government interventions against high utility bills. Both industrial goods and food have begun to benefit from the counter-shock on supply factors, and this trend is expected to intensify in the coming months. However, services do not hint at slowing down, as they are more sensitive to demand that remains brisk in the sector (and some upside risk will come from accelerating labor costs).
The week’s market movers
In the Eurozone , the main focus will be on the May confidence surveys. PMI surveys are expected to confirm a divergent picture between declining activity in manufacturing and rising in services. National surveys should send mixed signals (French INSEE is seen recovering while German Ifo and Istat indices in Italy are forecast to fall). The preliminary estimate of the European Commission’s consumer confidence index is expected to show a modest improvement in morale. Also in the Eurozone, construction output is forecast to fall again in March after two months of expansion. Finally, the second reading of German GDP is expected to confirm the stagnation of the beginning of the year and the detail of the components should show a positive contribution from investment and net exports, offset by a decline in both private and public consumption.
In the United States, the spotlight this week will be on the minutes of the May FOMC meeting, that should report the gelling of consensus in favour of discussing a pause in the rate hike cycle in June, as well as a dispersion of opinions on the risk of an interruption of the inflation downtrend. For what concerns data, May flash PMIs are expected to provide indications of a marginal contraction in manufacturing, as opposed to a moderate expansion in services. Personal spending and personal income are expected higher in May. The core deflator is forecast at +0.4% m/m, with a reacceleration of the year-on-year rate to 4.7% y/y.
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