On the heels of a major tumble in German PPI last week…

Did European inflation just peak pic.twitter.com/8L7eCpOV5Q

— zerohedge (@zerohedge) November 21, 2022

Germany’s headline CPI just fell 0.5% MoM (notably worse than the 0.2% decline expected) – its biggest monthly decline since Dec 2020, pulling the YoY CPI down from 10.4% to 10.0% with factors including energy costs being the driver of the drop in prices.

Source: Bloomberg

In fact, the ‘deflationary’ impulse is everywhere across Europe this morning with Spanish CPI rising less than expected (+6.6% YoY vs +7.1% YoY exp) as consumer prices fell 0.1% MoM (for the fourth straight month); all the regional German CPIs tumbled MoM (Hesse -0.4% MoM), Baden Wuerttemberg -0.2% MoM, Bavaria -0.3% MoM,Brandenburg -0.5% MoM, and Saxony -0.3% MoM); Italian PPI tumbled 4.3% MoM; and Belgium’s CPI fell to 10.63% in the 12 months to November from 12.27% in October.

And while all of these may be positive signs for some (ECB tightening pressure may be relieved), it is doing nothing for European Industrial Confidence which tumbled more than expected to -2.0 – the lowest since Jan 2021…

Source: Bloomberg

Inflation data for the 19-nation euro zone are due tomorrow, with economists also estimating a slight moderation – the first in 18 months.

Goldman has downgraded their Euro area headline inflation forecast to 10.84%yoy, from 11.00%yoy previously, and marked down slightly their core inflation tracking estimate by 3bp to 4.98%yoy.

That reading will be crucial as ECB officials weigh a third straight 75 basis-point hike in borrowing costs or a smaller half-point move before a likely recession.

For now, the odds of a 75bps hike In December have tumbled notably.

However, contrary to some investors and even her own deputy, Luis de Guindos, European Central Bank President Christine Lagarde pushed back on expectations the high watermark for price growth had been reached.

“We do not see the components or the direction that would lead me to believe that we’ve reached peak inflation and that it’s going to decline in short order,” Lagarde told the European Parliament.

She added that ECB economists still saw clear “upside” risks – financial jargon for the risk that inflation readings could come in higher than expected.