Weak inflation environment in euro area

Preliminary euro area headline and core inflation came in slightly stronger than expected in August (+0.2% and +1.0%, respectively). However, it is still consistent with the recently downwardly revised euro area inflation profile for this year (0.0%) and next, states Barclays. Producer prices data for July also suggest pressures along the prices chain remain muted. Headline PPI inflation was firmly in negative territory (-2.1%, broadly unchanged since April), and that holds true once energy prices are excluded (-0.4%).

The condition of the labour market continues to improve. The unemployment rate declined to 10.9% in July from 11.1% previously, after being on a downward trend since March 2013. 

"While this is good news, the further improvements are needed to accelerate the wage inflation outlook. Meanwhile, August final PMIs show that confidence remains insensitive to global economic worries, consistent with our expectation that growth momentum will be maintained in Q3, with our PMI-based GDP indicator standing at +0.5% q/q - a touch above our 0.4% q/q GDP projection", says Barclays.