MUFG Macro：Inflation near a three-year high but still limited signs of any second-round effects (839KB)

Key arguments

• August headline HICP acceleration to 3.2% was driven by 14% energy inflation; core fell to 2.4% as services moderated to 3.0%.
• No clear second-round effects: inflation breadth above 4% remains limited, services are on a downward path, and labour market tightness is well below the 2022 peak.
• Gas storage entering winter at a 15-year low is the most likely and most impactful upside risk, capable of broader production-cost spillovers and genuine second-round effects.
• Refined product prices have decoupled from Brent crude, keeping transport HICP momentum elevated, while fertiliser disruptions could push food inflation higher with a long lag.

Corresponding source evidence

1. Food inflation is currently low, but disruption in fertiliser markets and a strong El Niño could alter the outlook by year-end.
2. If higher energy prices keep headline inflation significantly above target for an extended period, the ECB may choose to tighten further even before clear evidence of second-round effects emerges.
3. We have regarded a 2.5% deposit facility rate as the likely endpoint of the tightening cycle, but the risk of additional rate hikes has risen materially in recent months.