Clarity on the Horizon? We expect the NSA levels of core and headline HICP to come in at 122.69 and 129.19 in June, respectively. Based on our projections, the YoY is expected to be 2.34% for core HICP and 2.07% for headline HICP in June. Figure 1 illustrates our MoM forecast errors for NSA data across both core and headline HICP. Over the past few months, the standard error and standard deviation of our MoM forecasts have been 4bps (4bps) and 10bps (10bps) for core and headline HICP, respectively. The June reading is unlikely to provide clear insights into whether and when core inflation will reach the 2% target—unless we see a significant surprise. Risks are balanced.
Medium-Term Models Little Changed. Assuming our forecast holds, our medium-term models remain unchanged, as the Q2 forecast would be validated by the data. The medium-term model forecast is now close to the latest ECB/NCBs staff forecast.
ECB Outlook. From the ECB’s perspective risks are high on both sides. We think it is unlikely that the ECB will cut again in July.
Figure 1. Underlying Inflation MoM forecast errors (on NSA data).
Our forecast
Unlikely to bring clarity. We expect the NSA levels of core and headline HICP to come in at 122.692 and 129.19, respectively, for June. Our forecast assumes an NSA level of 115.70 for NEIGs and 126.77 for services. The NSA “unchained” levels by year for NEIGs and core services can be found here and here.
We anticipate an NSA MoM growth rate of 41bps for core HICP and 38bps for headline HICP. In seasonally adjusted terms, core HICP is expected to rise by approximately 20bps MoM. We perceive the risks to be well balanced.
Our estimates imply YoY growth of 2.34% for core HICP and 2.07% for headline HICP. That said, as always, we do not place too much weight on sector-specific readings and will wait for the final distributions.
Overall, the June HICP report is unlikely to provide clarity on whether—and when—core inflation will reach the target, unless there is a significant surprise.
Figure 2. 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 model forecasts would be little changed. Projections based on the unemployment rate (average YoY) indicate: 2.4% in 2025, 2.2% in 2026, and 2.1 in 2027. Meanwhile, forecasts using the output gap indicate: 2.3% in 2025, 1.9% in 2026, and 2.0% in 2027.
These projections are now very close to the most recent ECB/NCBs staff forecast.
Figure 2. Model-based medium-term forecast of core HICP (YoY)
Using Urate as a measure of “slack”
Using output gap as a measure of “slack”
