Once again, unlikely to bring clarity. We expect the NSA level of core and headline HICP at 119.72 and 126.40, respectively. Our forecast for core HICP is consistent with a MoM (saar) around 2½ percent, in line with the signals of the distributions. Conditional on our forecast, the YoY on NSA data is expected at 2.72% for core HICP and at 2.37% for headline HICP. Figure 0 shows our MoM forecast errors on NSA data for both, core and headline HICP. In the last few months, the std error and std deviation of our MoM forecast for core (headline) HICP have been 6bps (4bps) and 14bps (10bps), respectively. The June reading is unlikely to bring clarity to whether and when core inflation can/will reach the 2% target. Conditional on our forecast, the NSA (unchained) level of core HICP, and even more of services HICP, would show limited progress (or no progress at all compared to 2023) and would continue to be consistent with a 2½+ percent reading by the end of the year.
Medium-term models a bit above the latest ECB/NCBs staff forecast. Conditional on our forecast, the medium-term models are little changed compared to the previous run and the average of the models remains a bit above the latest ECB macroeconomic projection exercise. The ECB has cut rates and will wait until September before re-assessing. To us, risks are still to the upside.
Figure 0. Underlying Inflation MoM forecast errors (on NSA data).
Our forecast
Unlikely to bring clarity. We expect the NSA level of core HICP and headline HICP at 119.72 and 126.40, respectively in June. Our forecast is based on the assumption that the NSA level of NEIGs prints at 114.8 and services prints 122.6. The NSA “unchained” level by year of NEIGs and core services can be seen here and here. Please, note that our forecast is close to consensus, but still implies virtually no deceleration for HICP services in NSA space (which is not the consensus right now). Our forecast corresponds to a NSA MoM growth rate of 21bps for core HICP and 7bps for headline HICP. In SA terms, we expect core HICP to expand at around 20bps MoM. The risks around our forecast are balanced. Our forecast implies the YoY of core HICP and headline HICP at 2.72% and 2.37%, respectively. In any case, as usual, we do not put much weight on the sectoral readings, and we will wait for the final distributions. Overall, the June HICP report is unlikely to bring clarity to whether and when core inflation can/will reach target as opposed to remaining above target (at around 2.5%) – see Figure 1.
Note: The “unchained” index of core HICP is shown in Figure 1 (for a discussion about “unchained” HICP see here and here). For the record: the YoY of the unchained core HICP index is expected at 2.45% in June. A chart comparing the YoY of chained (published) vs unchained core HICP is here.
Figure 1. NSA “unchained” core HICP level by year (1 = new year’s eve)
Implications for the “main” model
Implications for the medium-term model-based forecast of core HICP price inflation. Conditional on our MoM forecast, the models forecasts would be little changed. The model forecast using the unemployment rate (average YoY) is: 2.8% in 2024, 2.6% in 2025, and 2.4% in 2026. Using the output gap is: 2.7% in 2024, 2.4% in 2025, and 2.3% in 2026. The average of these forecasts is a bit above the latest ECB/NCBs staff forecast.
Figure 2. Model-based medium-term forecast of core HICP (YoY)
Using Urate as a measure of “slack”
Using outputp gap as a measure of “slack”
