Eurozone producer prices fall into negative territory for first time since 2020

Eurozone producer prices fall into negative territory for first time since 2020
Eurozone producer prices fall into negative territory for first time since 2020

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A key measure of eurozone inflation has fallen into adverse territory for the primary time in two and a half years, in an extra signal that the surge in costs that has plagued companies and households is now in retreat.

The EU’s statistics workplace, Eurostat, mentioned manufacturing unit gate costs within the area fell 1.5 per cent within the yr to Might, the primary outright decline since December 2020.

The measure has fallen considerably for the reason that summer time, when annual value rises hit a peak of 43.3 per cent in August after power prices surged within the wake of Russia’s full-scale invasion of Ukraine.

The decline will increase hopes {that a} sequence of charge rises by the European Central Bank is lastly starting to repay.

Central financial institution figures out on Wednesday confirmed households more and more count on inflation to fall sharply over the approaching yr, a pattern that Andrzej Szczepaniak, an economist at Nomura, described as “precisely what the ECB can have been on the lookout for”.

Nonetheless, client value inflation stays properly above the ECB’s 2 per cent goal at 5.5 per cent within the yr to June. At 5.4 per cent, the core client costs are near file highs.

Increased borrowing prices are additionally weighing on exercise within the area’s housing market. Separate information revealed by Eurostat on Wednesday confirmed home costs fell for the second quarter in a row — although by a smaller quantity within the three months to March than within the ultimate quarter of 2022.

Common mortgage charges throughout the eurozone now stand at 3.58 per cent, up from 1.78 per cent a yr in the past, in keeping with ECB figures. The central financial institution has raised its benchmark deposit charge by 4 share factors to three.5 per cent over the previous yr.

A breakdown of producer costs confirmed power prices have been down 13.3 per cent in contrast with Might final yr. Manufacturing unit gate costs charged on intermediate items, equivalent to components of equipment, additionally contracted.

Producer costs have been down 1.9 per cent between April and Might, with all EU international locations besides Malta reporting a contraction.

Eurozone home costs fell 0.9 per cent within the first quarter in contrast with the earlier three months, following a 1.7 per cent contraction within the earlier quarter. That marked the primary two consecutive contractions in nearly a decade.

Line chart of House price index showing Eurozone house prices have cooled

Households’ expectations for inflation over the following 12 months decreased to three.9 per cent in Might, from 4.1 per cent in April, in keeping with the ECB’s quarterly ballot. The autumn in inflation expectations to the bottom degree since final March “properly illustrate that the disinflationary course of within the eurozone is gaining momentum”, mentioned Carsten Brzeski, an economist at Dutch financial institution ING.

He added that it confirmed his view “that each headline and core inflation may fall sooner in direction of the tip of the yr than the ECB at the moment thinks”.

Markets count on rate-setters to lift borrowing prices by 1 / 4 level on the subsequent two coverage conferences in July and September.

In Germany, the area’s largest financial system, costs have fallen 6.8 per cent. Sven Jari Stehn, economist at Goldman Sachs, mentioned: “The drag from coverage tightening through the housing market is more likely to construct.”

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