Europe: What is the ‘data’ that the ECB values
2024-07-29
■ ECB formulates forward-looking policy judgments through independent surveys and analysis of data
■ Recently, some data related to the June interest rate cut decision have shown unexpected changes
The European Central Bank (ECB) decided at its board meeting on the 18th to maintain its current policy guidelines, which rely on data from each meeting to make judgments. Lagarde, the ECB president, stated at a press conference after the meeting that there is no predetermined path for the September ECB Council, and the current assessment is fluid.
Due to the eurozone's poor timeliness of economic statistics, the ECB conducts forward-looking policy judgments through independent surveys and analysis to measure inflation expectations and introductory inflation rates. The ECB regularly conducts surveys such as the Survey of Professional Forecasters (SPF), Consumer Expectations Survey (CES), Corporate Telephone Survey (CTS), and Survey on Access to Financial Enterprises (SAFE), which track changes in experts' price expectations, household and business inflation expectations, and wage growth expectations. In addition, to capture the primary trends of wages and inflation rates, the ECB has also developed indicators such as the "ECB Wage Tracker" and the "Basic Inflation Rate (PCCI, which stands for persistent and common components of inflation)." The decision to cut interest rates in June was based on these indicators showing signs of slowing inflation, demonstrating the ECB's emphasis on labor-management negotiations and corporate pricing behavior.
Since the ECB Council, multiple survey results have been updated. The 2024-2026 SPF data released on July 19th shows that the inflation rate expectations for 2024 (2.4%) and 2025 (2.0%) are consistent with the forecast for the April-June period, with a 0.1 percentage point downward adjustment for the 2026 forecast. However, the expectations for 2024 and 2025 are lower than the macroeconomic forecast of the ECB in June, indicating that the expected inflation slowdown is faster than the ECB's expectations. Meanwhile, the summary of corporate interviews from June 17th to 26th showed that although prices in the service industry have risen relatively quickly, overall prices and wage increases have remained stable, with the increase gradually slowing down. This result is roughly consistent with SAFE's inflation and wage expectations (June 2024 survey) released on the 15th, indicating that companies' inflation expectations are declining. However, the company report states that due to further increases in shipping and inventory costs for ships transiting through the Red Sea region, the expected wage growth rate for 2024 and 2025 is still high (3.5%). Recent salary trackers also show that salary increases in June have accelerated. Although the ECB assumes that these inflationary accelerations are temporary and do not immediately affect policy decisions, this contradictory trend becomes an obstacle to further easing monetary policy.
■ Recently, some data related to the June interest rate cut decision have shown unexpected changes
The European Central Bank (ECB) decided at its board meeting on the 18th to maintain its current policy guidelines, which rely on data from each meeting to make judgments. Lagarde, the ECB president, stated at a press conference after the meeting that there is no predetermined path for the September ECB Council, and the current assessment is fluid.
Due to the eurozone's poor timeliness of economic statistics, the ECB conducts forward-looking policy judgments through independent surveys and analysis to measure inflation expectations and introductory inflation rates. The ECB regularly conducts surveys such as the Survey of Professional Forecasters (SPF), Consumer Expectations Survey (CES), Corporate Telephone Survey (CTS), and Survey on Access to Financial Enterprises (SAFE), which track changes in experts' price expectations, household and business inflation expectations, and wage growth expectations. In addition, to capture the primary trends of wages and inflation rates, the ECB has also developed indicators such as the "ECB Wage Tracker" and the "Basic Inflation Rate (PCCI, which stands for persistent and common components of inflation)." The decision to cut interest rates in June was based on these indicators showing signs of slowing inflation, demonstrating the ECB's emphasis on labor-management negotiations and corporate pricing behavior.
Since the ECB Council, multiple survey results have been updated. The 2024-2026 SPF data released on July 19th shows that the inflation rate expectations for 2024 (2.4%) and 2025 (2.0%) are consistent with the forecast for the April-June period, with a 0.1 percentage point downward adjustment for the 2026 forecast. However, the expectations for 2024 and 2025 are lower than the macroeconomic forecast of the ECB in June, indicating that the expected inflation slowdown is faster than the ECB's expectations. Meanwhile, the summary of corporate interviews from June 17th to 26th showed that although prices in the service industry have risen relatively quickly, overall prices and wage increases have remained stable, with the increase gradually slowing down. This result is roughly consistent with SAFE's inflation and wage expectations (June 2024 survey) released on the 15th, indicating that companies' inflation expectations are declining. However, the company report states that due to further increases in shipping and inventory costs for ships transiting through the Red Sea region, the expected wage growth rate for 2024 and 2025 is still high (3.5%). Recent salary trackers also show that salary increases in June have accelerated. Although the ECB assumes that these inflationary accelerations are temporary and do not immediately affect policy decisions, this contradictory trend becomes an obstacle to further easing monetary policy.