EURi: Data boosts front-end; Curve flattens

Balloon 9 jul 2020
Higher than expected French and Spanish preliminary inflation data boosted the front-end and flattened the curve.

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  • Data boosts front-end; Curve flattens
  • Food inflation driving prices - ABN Amro

    Data boosts front-end; Curve flattens
    Higher-than-consensus preliminary euro HICPx inflation prints boosted front-end inflation and flattened the curve today.

    Beginning at the start of the session, French euro HICPx printed at 7.2%yoy versus the 7.0% Bloomberg consensus while Spanish euro HICPx came in at 6.1%yoy versus 5.7%. “Indeed, the inflation numbers were higher than expected, the 1y fixing outperformed and the curve flattened again,” said one inflation trader.

    More generally, traders added that the decent selloff in the euro rate market helped the inflation market to rally. The 10y Bund yield peaked as high as 2.70% (+11bps) intraday before falling back towards 2.65% at the close.


    Also in the mix, traders have been kept busy with month-end activity, "It's been a bit swamped with the end of month flows," said one.  


    Food inflation driving prices - ABN Amro
    Meanwhile in a strategy note published today ABN Amro finds that rapid food price inflation has been a significant driver in the latest data. It writes:

    “France did not report core inflation but the components of the CPI that were published revealed that services price inflation increased by 0.3% and goods price inflation ticked higher by 0.1%. Spain reported a rise in core inflation to 7.7%, up from 7.4%. But, in contrast to the Eurostat data for the eurozone as a whole, Spain only excludes fresh food from the headline rate to calculate the core and not processed food, which is excluded by Eurostat. It seems that the rise in core inflation in Spain was largely due to higher processed food price inflation.


     “Summing up, the rise in headline inflation in France and Spain was probably mainly due to the fact that a further acceleration in food price inflation more than outweighed a further decline in energy price inflation. Indeed, France reported a rise in total food inflation from 13.3% to 14.5% and a decline in energy inflation from 16.3% to 14.0%. 


    “Total eurozone inflation will be published on Thursday 2 March. The consensus forecast is that headline inflation falls from 8.6% in January to 8.3% in February. But the data from France and Spain suggest that eurozone inflation could actually rise to around 8.8% on the back of the jump in food price inflation. The consensus forecast is that core inflation stabilises at 5.3%, which still seems likely, although the risks seem to be tilted towards a small rise in core inflation. Looking further forward, we continue to see both headline and core inflation falling rapidly later in the year on the back of the decline in wholesale energy and food prices as well as dissipating supply chain bottlenecks.”