Europe's Price Path Remains Driven by Services and Wages

The ECB and BoE face challenges easing policy as service sector wages remain high, while currency strength poses significant tightening risks for European exporters.

Key Takeaways

• 1.The labor market in the Eurozone and UK remains too resilient in the services sector to justify aggressive monetary easing by the ECB and BoE.
• 2.Currency strength (NEER/REER appreciation) is causing material tightening in financial conditions for export-based economies like Sweden and the Eurozone.
• 3.The recent metals rally is seen as a temporary terms-of-trade boost rather than a new commodity super-cycle, requiring structural reforms for lasting impact in EMs.

Table of Contents

• Key Highlights
• Labor market deterioration appears to have slowed in core Eurozone
• Our take
• Forward Look
• Euro strength represents material tightening in financial conditions
• Higher commodity prices not a cure-all for EM inflation expectations
• Chart pack

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