Global Daily – Food pushes up Eurozone headline inflation but core subdued

by: Aline Schuiling , Nick Kounis

Euro Macro: Inflation fuelled by food price inflation –  A large number of eurozone member states published harmonized HICP inflation data for February today. The vast majority reported a rise in HICP inflation compared to January. For instance, in France it increased from 1.4% yoy to 1.5% yoy, in Italy from 0.9% to 1.2%, in Spain from 1.0% to 1.1% and in Portugal from 0.6% to 0.9%. Germany was the odd one out and reported a stabilisation, at 1.7%. Belgium did not publish harmonized HICP inflation but its national CPI increased from 2.0% to 2.2%. None of the countries published the components of HICP inflation, but some did publish some details of national or regional (Germany) CPI inflation, while other statistical bureaus wrote a qualitative assessment of the main drivers of the changes in inflation. It turns out that the main driver behind the rise in headline inflation was the inflation rate of food products (both processed and fresh food), which jumped higher in February. On top of that, most countries reported that energy price inflation increased, albeit to a much lesser extent than food price inflation. With regards to changes in core inflation, Germany, France and  Italy all reported declines in services price inflation, which suggests that core inflation declined somewhat as well. On 1 March the first estimate of eurozone aggregate HICP inflation will be published. Based on the national data mentioned above, it seems that headline inflation increased from 1.4% to 1.5%, while core inflation edged lower, from 1.1% to 1.0%. Looking ahead, we expect core inflation to remain close its current levels of around 1% throughout this year. (Aline Schuiling)

US Macro: Growth still above trend in Q4, but will slow this year – The economy continued to grow at an above trend rate at the end of last year, even though it cooled from the buoyant rates seen in Q2-Q3. GDP growth slowed to 2.6% in Q4 (consensus: 2.2%) from 3.4% in Q3, and compared to the trend rate of around 2%. Noticeable in the components was a cooling of consumer spending growth (2.8% from 3.5%), while government spending slowed sharply  (0.4% from 2.6%). On the bright side, there were signs of strength in non-residential investment (6.2% versus 2.5%), with equipment spending (6.7% after 3.4%) and intellectual property strong (13.1% after 5.6%). Net exports were also much less of a drag, with exports rebounding from unusual weakness in Q3 and imports slowing following exceptional strength. Looking forward, we expect economic growth to slow during the course of this year to eventually settle at below trend rates. We think the weakness in the global economy will take its toll, with business investment spending also following, helped as well by weaker profit growth. Consumer spending should be more resilient, while quite some of the fiscal stimulus in terms of government expenditure has to come through still. The path of growth in coming quarters may well be quite volatile though. Nowcast forecasts point to a sub-2% reading in the current quarter, though Q1 has tended to be weaker than underlying trends in recent years. In addition, the timing of the boost from government expenditure is uncertain. (Nick Kounis)