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HSBC Global Viewpoint: Banking and Markets
The Macro Brief – Europe’s inflation fight
Oct 20, 2023
Discussion on Europe's efforts to control inflation, including trends in Eurozone inflation and challenges in reducing service sector inflation. Debate on central bank actions and concerns over Italy's borrowing costs. Exploration of UK government's constraints on tax cuts and potential economic challenges. Summary of China's GDP data and updates on global capital expenditure growth.
10:46
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Quick takeaways
- The success of raising interest rates to control inflation in Europe and the UK is uncertain due to factors such as service sector inflation and sticky wage growth.
- The ECB is expected to discuss the duration of rates rather than the peak and address other policy areas such as balance sheet policy, while the UK government faces challenges in cutting taxes due to high debt and upcoming elections.
Deep dives
Outlook for the European economy
The ECB and the Bank of England have raised interest rates to control soaring inflation, but the success of these measures is uncertain. While inflation fell sharply in September and October due to base effects from last year's energy price rises, service sector inflation remains higher and sticky. Factors such as wage growth and fiscal policies contribute to the longer time it takes for inflation to come down. Markets have also adjusted their expectations for interest rate cuts due to the stickiness of inflation, resulting in higher long-term yields.
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