Inflation will condition the ECB's movements

Inflation in the eurozone, despite the notable decline seen since peaking in 2022, continues to fall less quickly than the European Central Bank (ECB) would like. After learning yesterday that inflation in Europe was 2.5% in June, Alberto Matellán, chief economist at MAPFRE Inversión, explained that this level, although “reasonable,” will continue to limit the ECB as far as future interest rate cuts go.

“Inflation is showing resistance to falling, that's what sets everything apart,” Matellán summarized in an interview on Radio Intereconomía. Although prices have receded by one tenth compared to the previous month, “getting it down more is proving to be difficult”, as it’s mainly supply-driven inflation, which “is largely beyond our control, and this conditions the ECB's movements,” said Matellán.

This week's declarations by central bankers, and not just in the United States, confirm that there is still a problem, so they want to wait and see how the evolution of macroeconomic variables goes. In Matellán’s opinion, this means that “the rate drop scenario may take longer to manifest, but it’s still the overall goal.”

Furthermore, the elections in France have had an impact on the market, but this has been moderating throughout the week. “The markets are saying that the change may not be as extreme as had been suggested,” according to the chief economist at MAPFRE Inversión. Until the second round of French legislation has passed, there will still be “a lot of noise,” he predicted, but “what really matters is what they’re going to do, and we’ll see that in due course”.

This Thursday sees the United Kingdom vote for its next prime minister, in an election that may generate some impact, but “quite limited in time,” says Matellán, in that economic policy will not suffer radical change.

Corporate earnings released this week aren’t “as good as we would have liked,” said Matellán, though the drop was in line with expectations. The weak growth is coming mainly from services, with industry far from firing on all pistons, although the economist estimates that the industrial sector will improve “in the coming months.”

Finally, oil has peaked in the last two months, with Brent crude prices at around 57 dollars a barrel, an increase that’s explained by three factors:

• Structural changes with producers - until recently, OPEC meetings reached conclusions that didn’t later materialize, but they are now acting in a more coordinated manner.
• A slight improvement in economic growth.
• Short-term tensions in certain geographical areas.

All of this pushes the price of crude oil upward, but “for a limited period of time, so it could stabilize in a while.”