ECB set to take comfort from underlying inflation reading later this week

Eurozone's annual gauge of underlying price growth is expected to have slowed to 4.8% in September, reaching a 12-month low

European Central Bank president Christine Lagarde is to attend a European Parliament hearing.

Central banks on each side of the Atlantic are likely to take comfort this week from a slowdown taking hold in key underlying measures of consumer-price growth. 

The eurozone's annual gauge of underlying price growth is expected to have slowed to 4.8% in September — a 12-month low.

In the US, the annual core metric that strips out food and energy from the US Federal Reserve’s preferred inflation measure may have fallen below 4% in August for the first time in nearly two years. Such coinciding evidence would reassure officials from the US Fed and the European Central Bank after a week when each signalled monetary tightening may be done or at least paused for now, shifting focus to keeping interest rates durably high to fully squash inflation. 

They do have reason for caution however, with the prospect that crude oil heading toward $100 barrel could yet fuel further price growth. 

Some recent increases in energy costs are already having an effect. The overall personal consumption expenditures price index that the US Fed favors is expected to pick up on a monthly basis to one of the strongest readings this year when that report is released on Friday.

Two-year low

Headline eurozone inflation, which will be released the same day, is still likely to have weakened drastically however — reaching 4.5%, a two-year low. Appearances by the Fed and ECB chiefs, along with rate decisions from Hungary to Mexico, will also keep investors busy. 

ECB president Christine Lagarde will testify in the European Parliament on Monday, in a session likely to touch on last week’s close-run decision to raise rates again. Other colleagues scheduled to speak in the coming days include Bank of France governor Francois Villeroy de Galhau and ECB chief economist Philip Lane.

While national inflation numbers from around Europe will draw attention before the release of the eurozone report, another data highlight will be Germany’s latest Ifo business confidence reading. 

Europe’s biggest economy may be contracting at present, and the index will show whether there’s any sign of optimism of growth improving.

Meanwhile in the UK, which last week surprised investors by keeping rates on hold instead of an increase, final GDP data for the second quarter will be released on Friday.

• Bloomberg