This week has seen some important data come out of the Eurozone that will give the European Central Bank (ECB) food for thought. On Tuesday, Eurostat revealed that the Eurozone’s unemployment rate fell to 6.4% in November, down from 6.5% in October and from 6.7% in 2022. This figure represents a record low for the region. A decline in levels of unemployment in theory means that workers are better placed to negotiate higher salaries, given that there is a smaller pool of eligible candidates for employers to choose from. Higher salaries are in turn linked to greater potential for consumption which, while positive for economic growth, may reinforce the ECB’s current stance that there is no need to rush into interest rate cuts just yet.
But is consumption increasing in kind? Recent retail sales data for the region that was reported this week show that we cannot definitively say that the answer is ‘yes’. Muddying the picture for the ECB when they meet to decide on interest rates on the 25th of this month are Eurozone retail sales, which fell 0.3% in November – the most acute drop since August of this year. Although fuel consumption rose on a month-on-month basis, consumers pared back on non-food products and food and drink sales decreased by 0.1%.
Investors are also patiently awaiting the latest Consumer Price Index for the US this week, due out tomorrow (11 January). Currently, it stands at 3.1% – a notable success for the Federal Reserve when considered that the figure last year stood at 9.1%. A marginal increase of 0.33% is also anticipated for core CPI, which excludes volatile elements such as food and energy prices – supporting the overall picture of eased inflation over the past few months. The market ran away with the Fed’s dovish comments from their meeting minutes last week, but the Fed maintain a data-dependent stance that will pivot on the downward trajectory of inflation to their 2% target.
Over in Japan, Tokyo’s core Consumer Price Index, which excludes food but includes fuel, rose 2.1%, a slight decline from November’s 2.3% rise. Bank of Japan’s Governor Ueda has however emphasised that they will need to keep policy ultra-loose until recent cost-driven inflation is replaced by a demand-driven increase in prices.
Still to come this week alongside US CPI, we have US PPI and UK GDP and Industrial and Manufacturing production.
Nicola Tune, Portfolio Specialist
