TD Securities strategists highlight that Euro area Harmonised Index of Consumer Prices (HICP) inflation rose to 2.9% y/y in July, with core inflation at 2.5% and services inflation at 3.3%, indicating only limited evidence of meaningful second-round effects. Markets continue to price a 25 bp European Central Bank (ECB) rate hike in September, which remains the TD’s base case. It notes that only a clear and durable resolution to the Middle East conflict would materially alter this outlook.

Euro inflation keeps September hike priced

"Euro area HICP inflation for July came in at 2.9% y/y (market: 2.9%; prior: 2.8%)."

"So overall, there was a small tick up in both core and services but still limited evidence of meaningful second-round effects."

"Markets continue to fully price a 25bp ECB rate hike in September, which remains our base case."

"A material shift in this outlook would likely require a clear and durable resolution to the Middle East conflict."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)