Euro-zone inflation readings used to be poured over for clues about how much higher the European Central Bank would send interest rates. Now, though, the figures are set to shape bets on cuts.
The shift is down to the latest ECB hike, which — despite President Christine Lagarde’s protests — investors, economists and many of her colleagues reckon was the final leg of this historic ramp-up in borrowing costs.
Inflation will determine how long peak rates persist — and Friday’s data for September will provide a first glimpse. As the ECB enters this new phase, an estimate of euro-area price gains by Bloomberg Economics’s new Nowcast model points to a steep slowdown — to 4.6% from 5.2% in August. Country data will be mixed: The Nowcast suggests Germany will report a substantial slowdown, while France and Spain see accelerations. Italy probably held at 5.5%.“Euro-area headline and core inflation are likely to drop below 5% for the first time this year in September. That will ease pressure on the ECB and cement the case that interest rates have peaked in the region.”As well as the ECB, inflation dynamics may be entering a new phase.
Others on the 26-strong Governing Council caution that it’s too soon to call the peak in rates, and that further tightening may yet be necessary should prices not recede as envisaged.
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