Services rebound will prop up near-term core inflation in the Eurozone

We expect eurozone services prices to continue to rise sharply over the summer as the sector’s recovery progresses. The ECB will see this as validation for the series of rate hikes it has signalled – we expect a cumulative 150bps of hikes by end-2022. Any upside surprises from core and especially services inflation will just add pressure to tighten faster.

What you will learn:

• High services inflation over the summer will keep core inflation elevated for the rest of this year, despite a slowing in goods prices as supply bottlenecks ease and demand weakens.
• But we expect services prices to slow substantially in 2023, supporting our below-consensus view on inflation for next year.
• The acceleration in eurozone services inflation to a 25-year high has been mainly due to previously depressed services sectors reflating as demand recovered.