Eurozone HICP For August Should Surprise Downward

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.


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