Eurozone HICP For September Should Surprise Downward

On Friday, Eurostat will release the first estimate of Eurozone HICP (Harmonised Index of Consumer Prices) for September. According to the Bloomberg consensus, on a YoY basis, Eurozone HICP is expected to decrease by 0.2%e (v -0.2% in August). Regional surveys and my proxies suggest that the consensus remains optimistic.

 

1/ Most of regional surveys were already released and showed that HICP contracted significantly YoY in September:

🇩🇪 Germany HICP YoY: -0.4% v -0.1% prior

🇪🇸 Spain HICP YoY: -0.6% v -0.6% prior

🇮🇹 Italy HICP YoY: -0.9% v -0.5% prior

🇵🇹 Portugal HICP YoY: -0.7% v -0.2% prior

 

2/ The deflationary pressures have been confirmed by several reports including Markit surveys, which highlighted that “average prices charged for goods and services meanwhile fell at the steepest rate since June, down on average for a seventh month running as firms increasingly reported the need to offer discounts to stimulate sales.

 

3/ A large part of the decline was explained by a cut in value-added tax in Germany, delayed summer sales (already flagged last month), weakness in hotels and restaurants’ prices (after a strong summer season) and lower energy prices (seen in France and Germany).

 

All in all, the September HICP report is likely to confirm that, on a YoY basis, July acceleration (+0.4% YoY) was supported by transitory factors (which reversed immediately) and that the coronavirus shock has been deflationary in the short term. As a result, Eurozone HICP is likely to remaine negative or close to 0.0% until year-end. This trend is likely to push ECB officials to think about adding more stimulus, probably as soon as December.

 

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