Europe Economic Research

Research evidence excerpt

Europe Economic Research

in the Middle East and significantfinal PMI is revised down as tensions increased over the

upside surprises to its recent growth view also contributing tocourse of the month, and the final survey will incorporate

that. With September feeling highly likely, the bigger ques-responses from the latter part of July. If not, the survey would

tion is about what happens thereafter. Our forecast has Sep-imply growth running near a ~1.5% ar pace.

tember as the final hike. Risks are skewed to one additional

rate increase thereafter, but this remains somewhat dependent

Figure 1: Euro area real GDP

on how the situation in the Middle East evolves. Despite low

%q/q saar PMI model storage levels, Brent and TTF still tend to fall quickly when

hostilities recede.

2 Core inflation stuck at 2.5%ar

Euro area headline and core inflation ticked up 0.1%-pt to

2.9%oya and 2.5%oya, respectively (Figure 3). This was in

GDP ex. Ireland line with our expectations on headline and was 0.1%-pt high-

-2 er on core, although our forecast was close in the rounding.

10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27

Source: S&P Global, Eurostat, J.P. Morgan

Figure 3: Euro area HICP inflation

On inflation, this week’s flash HICP report for July showed %oya, dotted line shows ECB inflation target, shaded is J.P.Morgan fcst

an 0.35%m/m, sa rise in core prices. This left core inflation 11 Headline

momentum looking stickier again, at ~2.5%ar (Figure 2). The 9

Core

full details in the final release in mid-August will help to 7

gauge the sources of this: a sticky pre-war trend, energy pass- 5

through, rising tech prices, noise in July or something else. 3

Our view on these sources has moved around this year. We

entered the year with a benign view on inflation, with incom-