Euro area headline inflation likely to have remained unchanged in August

The euro area flash headline inflation data for August is set to release tomorrow. The consumer price inflation has exceeded 2 percent in the currency bloc, but much of the recent rise is owing to higher energy and utility prices. Core inflation was much lower at 1.1 percent year-on-year through July. According to consensus expectations, the euro area headline inflation is likely to have remained unchanged in August.

While this matches the high of 2018, it continues to be almost half of the European Central Bank’s target of “below, but close to, 2 percent over the medium term.” The real GDP growth in Europe seems to have slowed down in 2018, unlike the U.S. Fiscal policy is far less expansionary in Europe than in the U.S., and the latter has possibly advanced more than the former from the increase in oil prices.

“Still, even if Eurozone real GDP growth falls to 2.1 percent in 2018 (our forecast), this is still faster than potential growth, which is probably about 1.0-1.5 percent. Core inflation at this pace should be enough to keep the ECB on track to end its quantitative easing by year end, but it would likely take a meaningful pickup for the ECB to accelerate its rate hike plans”, said Wells Fargo.

At 18:00 GMT the FxWirePro's Hourly Strength Index of Euro was neutral at -14.1583, while the FxWirePro's Hourly Strength Index of US Dollar was neutral at -8.3855. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex