EA: heavyweight uppercut for inflation
- Flash inflation releases for January have exceeded expectations to an almost ludicrous extent. Another spuriously aggressive methodological change has knocked the weight down on highly seasonal items and is likely to cause numerous surprises for years.- Expenditure data provided a good proxy of the weight changes in Germany. We have applied these factors across Northern Europe and an augmented version elsewhere, and are well-positioned to precisely incorporate the news once it’s announced.
- The ECB is now set to be surprised by inflation’s strength in 2021, which should help discourage the delivery of another deposit rate cut, in our view.
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