On Tuesday, Eurostat will release the first estimate of Eurozone HICP (Harmonised Index of Consumer Prices) for August. According to the Bloomberg consensus, on a YoY basis, Eurozone HICP is expected to slow to +0.2%e (v +0.4% in July). Regional surveys and my proxies suggest that the consensus remains optimistic.
1/ Most of regional surveys were already released and showed that HICP contracted or slowed significantly YoY in August:
🇩🇪 Germany HICP YoY: -0.1% v 0.0% prior
🇪🇸 Spain HICP YoY: -0.6% v -0.7% prior
🇮🇹 Italy HICP YoY: -0.5% v +0.8% prior
🇵🇹 Portugal HICP YoY: -0.2% v -0.1% prior
🇫🇷 France HICP YoY: +0.2% v +0.9% prior
2/ A detailed analysis of the July inflation report suggests that Eurozone HICP was boosted by a delay in promotional sales for categories such as “clothing and footwear” (which added 0.34 ppt to the headline). My proxies point to a downward normalization in August for this category and ongoing pressure in services linked to “passengers transport” as the coronavirus pandemic kept on weighing on airline fares.
Source: Eurostat
All in all, the August HICP report is likely to confirm that, on a YoY basis, July acceleration (+0.4% v +0.3% in June) was supported by transitory factors (which reversed immediately) and that the coronavirus shock has been deflationary in the short term. As a matter of fact, we can’t exclude a negative figure but even a 0.0% YoY print would be the lowest since May 2016. Lastly, it’s interesting to note that this downward surprise would come a few days before next ECB meeting (September 10th), where the central bank will unveil its new forecasts.
