Last week, European Central Bank President Christine Lagarde replied with “a decisive maybe” when asked whether her institution would keep the deposit rate at a record high of 3.75%, or hike again in September. Monday’s first estimate of consumer price data for July reinforces the case for a pause on rising rates, but for Lagarde the picture is frustratingly unclear.
Sure, headline inflation fell from 5.5% in June to 5.3% in July but the core measure, which excludes energy, food, alcohol and tobacco, stayed put at 5.5% and is higher than in May. Worse still, services prices rose at a new record pace of 5.6%. Lagarde’s hardline colleagues will point out that’s too fast to bring inflation back to the ECB’s 2% target. Markets aren’t sure, ascribing a 70% chance to a pause in September, according to derivatives pricing data collected by Refinitiv.
The ECB has time. Revisions to the July numbers will follow and policymakers will get inflation data for August before they meet on September 14. With the euro zone economy weakening – Monday’s 0.6% annualised rise in second-quarter GDP was driven by one-off factors – Frankfurt rate-setters will be glad they are on holiday for the next month or so.