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Bert Colijn, senior economist at ING, notes that Eurozone’s headline inflation is at 1%, with core inflation at 0.9% in August and unemployment falling by just 16,000 in July.

Key Quotes

“Headline inflation had been elevated for some time thanks to energy price growth, but recent developments in the oil price and a downward base effect have brought headline inflation more or less in line with core. The fact that this is happening at around 1% is indicative of rather anemic economic growth and is cause for the activist ECB speeches that seem to be the prelude to significant action in September.”

“While core inflation has not moved out of the 1% range for quite some time now, drivers of inflation have not provided much reason for optimism about a quick core inflation recovery in the months ahead. Producer price growth has fallen significantly in recent months and wage growth, while justifying a much higher core inflation rate than 1%, has dropped back from 2.25% to 2% YoY.”

“The job market has remained an important reason for growth to remain positive and has provided some much needed upward pressure on inflation, even though they have so far not materialized.”

“The July unemployment numbers saw just a minor decline, with 16,000 fewer people unemployed. While these numbers are volatile, a slowing labour market would raise red flags about economic growth and inflationary pressures. Taking all of this into account, there’s good reason not to expect the ECB to hold back next month.”