Take Two: Core Eurozone inflation eases; US Q2 economic growth revised down

What do you need to know?

Eurozone inflation remained unchanged at 5.3% year-on-year in August, according to a flash estimate. Eurostat, the statistical office of the European Union said the main components of price rises over the month were thought to be food, alcohol, and tobacco – with an annual rate of 9.8% compared to 10.8% in July. However, core inflation, which excludes volatile food and energy prices, eased to 5.3% from 5.5% a month earlier. While the decline should be welcomed by the European Central Bank, the bloc’s labour market remains tight, adding to the uncertainty over whether policymakers will raise interest rates again when they meet next week.

Around the world

US second quarter (Q2) GDP growth has been revised down to 2.1%, after an initial estimate of 2.4%. Following 2.0% expansion in Q1, an official report showed growth over the period was driven by consumer spending and outlays by state and local governments. The revision may well be welcomed by Federal Reserve (Fed) officials, as the report also highlighted that inflation had eased somewhat over the three-month period, potentially taking pressure off the Fed to further raise rates. At the recent Jackson Hole Symposium, Fed Chair Jerome Powell maintained a potentially higher for longer stance on interest rates in a bid to continue to bring inflation closer to the Fed’s 2% target.

Figure in focus: 25 years

Japan’s government struck an optimistic tone last week suggesting the country’s 25-year battle with deflation may be at an ‘inflection point’. In its annual economic white paper, it noted the country had seen broadening price and wage rises, noting that such changes suggest the economy is “reaching a turning point”. It added: "We should not dismiss the fact a window of opportunity may be opening to exit deflation.” Notably, the Bank of Japan has also been more upbeat and has indicated the paring back of the nation’s significant fiscal and monetary support may come with evolving corporate price and wage-setting behaviour.

Words of wisdom

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What’s coming up

Australia’s central bank meets to set interest rates on Tuesday, when final composite Purchasing Manager Indices are also reported for Japan, the Eurozone and the UK. On Wednesday the Bank of Canada holds its own monetary policy meeting while Australia posts its Q2 GDP growth rate – it expanded 2.30% year on year in Q1. Thursday sees a third estimate of Eurozone Q2 GDP growth published, while Japan follows with its own final Q2 GDP growth numbers on Friday.