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Included this week:

  • Inflation
  • Interest Rates: Houshold Purchases
  • Economic Growth

Inflation

HICP

The left panel shows the Euro Area HICP, with Decemeber figures being an estimate released today. The panel on the right show a line chart of the monthly movement and the 1 and 2 standard deviations above and below zero for the entire series which dates back to 1997. - See appendix for full series. Although there was a significant decline to December on the headline, the core increased slightly.

The left panel shows the Euro Area HICP, with Decemeber figures being an estimate released today. The panel on the right show a line chart of the monthly movement and the 1 and 2 standard deviations above and below zero for the entire series which dates back to 1997. - See appendix for full series. Although there was a significant decline to December on the headline, the core increased slightly.


Headline inflation is showing signs of declining in the regions above. All bar Ireland are following the Euro Area trend of headline declining and core stable / slight increase, but this may change with the December release (estimate) for Ireland. This typically follows a day or so after the headline estimate, which was released today for Ireland. Persistent core infaltion could pose a difficulty for the ECB in the months to come.

Headline inflation is showing signs of declining in the regions above. All bar Ireland are following the Euro Area trend of headline declining and core stable / slight increase, but this may change with the December release (estimate) for Ireland. This typically follows a day or so after the headline estimate, which was released today for Ireland. Persistent core infaltion could pose a difficulty for the ECB in the months to come.


In the US, Fed representatives are often cited in the media for what they believe the Fed will do next in terms of rates. With many voices speculating it can muddy the water. We can expect the same in Europe, but with the added complexity of the variance between Eurozone members potentially leading to a misalignment in priorities around rate decisions. Francois Villeroy de Galhau, the French Central Bank Governor said yesterday that monetary tightening would probably end by the summer. This is similar to the view expressed by the Dutch Governor Klaas Knot who in December indicated that the ECB had passed the halfway point of the hiking cycle and would continue at “quite a decent pace of tightening”.

The most important view is that expressed by Christine Lagarde, who warned that the ECB will continue at “50bp hikes for a period of time” at the last meeting in December. That considered I can see the most likely rate being 3.75% after the July meeting, which is five rate decisions.


We start 2023 with the ECB at 2%, consider the historical relationship between HICP and rates. A lot of disinflation is needed for the prior estimate of 3.75% to be the peak

We start 2023 with the ECB at 2%, consider the historical relationship between HICP and rates. A lot of disinflation is needed for the prior estimate of 3.75% to be the peak


Bank Interest Rates

Clearly we can expect upward pressure on mortgage rates to continue, below is the latest data for the Euro Zone countries we’ve been looking at so far.

Irish rates lag other nations in what is a lagged series - to November 2022. Ireland now one percentage point behind Germany.

Irish rates lag other nations in what is a lagged series - to November 2022. Ireland now one percentage point behind Germany.


Huge moves across Europe preceeding that in Ireland will be an advantage in assessing impact on the housing market.

Huge moves across Europe preceeding that in Ireland will be an advantage in assessing impact on the housing market.


Economic Growth

The UK have been catching headlines lately as being the slowest G7 economy to recover post pandemic. See below comparison of the countries reviewed previously.

As discussed in the last issue GDP is not as strong a metric for the economy given the tax anomalies. See distortion above.

As discussed in the last issue GDP is not as strong a metric for the economy given the tax anomalies. See distortion above.


Appendix

Historical HICP