Has inflation in the euro zone increased further?

Has inflation in the euro zone increased further?

Can inflation maintain its record pace in the euro zone even as the economy already appears to be contracting and economists are widely predicting a recession this winter?

The final test will come on Friday, when the European Commission’s statistics department releases eurozone inflation data for September. Economists polled by Reuters expect consumer price growth to have reached 9.6% on an annual basis, down from a record high of 9.1% reached only in August.

The prices of oil, steel, wood and many other raw materials have been falling for several months. But this is offset by persistently high energy costs, which are hitting both manufacturing and service companies and prompting them to raise prices.

Another factor likely to push up inflation is the expiry this month of temporary measures taken by Germany to cushion the impact of high prices, such as a reduction in fuel taxes and a train ticket. monthly at 9 € subsidized.

Deutsche Bank economists predicted last week that eurozone inflation would peak at year-end around 9.5%. Pricing pressures also continue to build, as wholesale natural gas prices in Europe remain about two and a half times higher than a year ago, even after a recent decline.

The European Central Bank, which has already raised interest rates by 1.25 percentage points over the summer, will be watching the latest data carefully as it assesses how much borrowing costs need to rise to bring inflation back to its target of 2%.

Isabel Schnabel, member of the ECB’s executive board, underlined her concern last week: “What we see is that inflationary pressures have become much more generalized. They somehow crept into all sectors of the economy. Martin Arnold

How have higher interest rates affected the UK mortgage market?

Rising interest rates are expected to continue to dampen the sails of the UK property market as they make mortgages more expensive.

These rising costs come just as the average UK house price has hit an all-time high, following the pandemic-induced property boom and against a backdrop of falling real (inflation-adjusted) income.

The Bank of England released its latest credit and mortgage data for August on Thursday. Economists polled by Reuters forecast UK mortgage approvals fell to 62,000 last month, from 63,770 the previous month and down from their peak of more than 100,000 in November 2020.

Last week, the BoE announced another 0.5 percentage point increase in its key rate to 2.25%, the highest since 2008, marking its seventh consecutive hike.

Mortgage rates have risen accordingly.

“We expect the sharp rise in mortgage rates fueled by the Bank of England’s monetary policy tightening to continue to weigh on mortgage approvals,” said Ellie Henderson, an economist at Investec.

By contrast, house price growth in the UK remained solid, supported by a limited stock of properties.

The downward trend in mortgage approvals is likely to be affected by the stamp duty reduction announced by the Government on Friday, with no stamp duty payable on the first £250,000 of a property’s value, down from £150,000 £ previously. The threshold is raised to £425,000 for first-time buyers.

Rightmove housing expert Tim Bannister said that while activity has slowed, Friday’s announcement could “lead to a sharp increase in the number of potential buyers competing for the limited number of properties in sell,” resulting in higher house price growth. Valentina Romei

Did US consumer spending increase in August?

Consumer spending in the United States is expected to have increased in August, with the Commerce Department’s personal consumption expenditure index expected to show a monthly increase of 0.2%, according to a Reuters poll.

That follows a 0.1% increase, which missed economists’ expectations for a 0.4% increase. The sluggish spending in July was due to a reduction in consumption of goods and a slight increase in spending on services.

The shift to services spending could reverse a trend during much of the pandemic that has fueled rising goods prices. It would be a welcome development for the US Federal Reserve as it tries to rein in inflation, which hovers around its highest level in four decades.

“Consumer spending is in the midst of a continuing but still incomplete rotation back to pre-pandemic patterns,” Fed Vice Chairman Lael Brainard said in a speech this month. “Even so, the level of spending on goods remains 5% above the level implied by its pre-pandemic trend, while spending on services remains 4% below its trend.”

LPL Financial chief economist Jeffrey Roach said the Fed, through its main monetary policy tool, interest rates, is targeting aggregate demand. “The Fed has no power over the supply components of inflation,” he said, and while supply chain constraints have started to ease, it will take time. to affect retail consumer prices.

Recent data showed U.S. retail sales in August unexpectedly rose 0.3%, beating economists’ expectations for a flat reading. The numbers are not adjusted for inflation, but the lack of a sharp drop suggests consumers are still spending overall.

However, the retail control group, which excludes purchases of gasoline, motor vehicles, building materials and restaurants, remained stable. This group feeds into the official calculation of gross domestic product. The weak figure led the Atlanta Fed to cut its GDPNow tracking estimate for third-quarter GDP growth to 0.5% from 1.3%.

Lydia Boussour, chief US economist at Oxford Economics, still expects modest growth in consumer spending in the third quarter.

“Continued modest consumer spending growth in the third quarter is expected to be followed by a significant slowdown in the fourth quarter and some reduction in spending in the first half of 2023 as weak labor market gains dampen growth. revenues.” Alexandra White

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