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ECB Executive Board member Isabel Schnabel said further tightening will be necessary as energy-driven inflation risks persist and euro area economy stays resilient. In an interview with Bloomberg News published Wednesday, Aug. 26, Schnabel said, “At the current policy rate, inflation is unlikely to return to target over the medium term, and therefore further tightening will be necessary.” Her remarks reinforce expectations for another ECB move after June’s rate increase and go beyond simply keeping September hike on table.

Schnabel also warned that inflation is likely to stay above 2% for an “extended period” because of elevated energy costs. She argued that waiting for those pressures to feed fully into wages would risk leaving policymakers “behind the curve.” That language points to a pre-emptive reaction function: ECB does not need to wait for second-round effects to become entrenched before tightening further.

While Schnabel did not specify how many additional hikes may be required, she said markets “seem to understand our reaction function very well.” Her message therefore supports a hawkish near-term bias without committing ECB to a predetermined path beyond the next move. September remains the obvious focus, but Schnabel’s argument is broader: current rate setting is not yet sufficient to bring inflation sustainably back to target.

Key Takeaways

• ECB Executive Board member Isabel Schnabel said “further tightening will be necessary” because inflation is unlikely to return to target over medium term at current policy rate.
• She expects inflation to remain above 2% for an “extended period”, largely because of elevated energy costs.
• Schnabel warned that waiting until higher energy prices feed into wages could leave ECB “behind the curve.”
• Her comments point to a pre-emptive policy stance, with ECB willing to act before second-round inflation effects are fully visible.
• Schnabel did not specify how many additional hikes may be needed, preserving flexibility beyond next move.
• She said markets “seem to understand our reaction function very well,” suggesting current pricing broadly reflects ECB’s policy framework.
• September remains immediate focus, but Schnabel’s argument is broader: current rate setting is not yet sufficient in her view.

Australia’s headline CPI eased from 3.8% to 3.5% y/y in July, but still came in above 3.2% consensus. Monthly CPI rose 1.0% m/m, after a -0.1% decline in June, also slightly above 0.9% expected. More importantly for RBA, Trimmed Mean CPI held at 3.6% y/y, above 3.5% consensus, while monthly trimmed mean accelerated from 0.3% m/m to 0.5%, against expectations for another 0.3% increase.

Inflation pressure was not confined to one category. Housing was the largest annual contributor, rising 5.0% y/y, with new dwelling prices up 5.7% as builders passed through higher material and labour costs. Food and non-alcoholic beverages rose 3.2%, including a 4.5% increase in meals out and takeaway, while recreation and culture gained 2.6%. Transport inflation accelerated sharply from 0.1% to 1.6% y/y, with automotive fuel jumping 7.5% m/m as world oil prices rose and part of federal fuel-excise relief was unwound.

For RBA, sticky underlying inflation is the more important signal than decline in headline rate. Minutes released a day earlier showed Board explicitly considered whether it might be appropriate to tighten “pre-emptively” if upside inflation risks strengthened, while several members saw further tightening as “quite possible.” July data now give that camp fresh evidence: headline inflation is easing, but trimmed mean has stopped improving and monthly underlying momentum has strengthened. That keeps September meeting firmly live.

Data Summary

Key Takeaways

• Australia headline CPI eased from 3.8% to 3.5% y/y in July, but still exceeded 3.2% consensus.
• More important for RBA, Trimmed Mean CPI stayed at 3.6% y/y and monthly trimmed mean accelerated from 0.3% to 0.5%, above 0.3% expected.
• Housing remained largest annual contributor at 5.0%, with new dwelling prices up 5.7% as builders passed through higher labour and material costs.
• Transport inflation accelerated from 0.1% to 1.6% y/y, while automotive fuel jumped 7.5% m/m on higher global oil prices and partial unwinding of fuel-excise relief.
• Report reinforces concern that underlying inflation is not cooling as quickly as headline rate suggests.
• Combined with RBA’s recent discussion of pre-emptive tightening and explicit focus on monthly inflation data, July CPI keeps September meeting firmly live.

Full Australia CPI release here.

US consumer confidence edged lower in August, with Conference Board Consumer Confidence Index falling from 90.2 to 89.4, marking a second consecutive monthly decline. Headline weakness masked a sharp divergence between consumers’ views of present conditions and future outlook. Present Situation Index rose from 114.4 to 121.2, reversing three months of declines, while Expectations Index fell from 74.0 to 68.2.

Consumers became more positive about current business and labor-market conditions, but considerably more cautious about next six months. Conference Board said perceptions of current labor market improved, while expectations for future business conditions and employment deteriorated. Household income expectations also moderated, although they remained positive overall.

Inflation concerns edged higher at the same time. Both average and median 12-month inflation expectations increased slightly in August, while 61.3% of consumers expected interest rates to rise over coming year, down from 62.0% in July. Overall, survey points to a consumer that feels somewhat better about conditions today but increasingly uneasy about what comes next, leaving headline confidence under pressure despite improvement in current assessments.

Data Summary

Key Takeaways

• US Consumer Confidence Index fell from 90.2 to 89.4 in August, marking a second consecutive monthly decline.
• Headline weakness masked a sharp divergence between current conditions and future expectations.
• Present Situation Index rose from 114.4 to 121.2, reversing three months of declines as consumers became more positive about business and labor-market conditions.
• Expectations Index fell from 74.0 to 68.2, showing greater pessimism about business conditions and labor market over next six months.
• Household income expectations moderated but remained positive overall.
• Average and median 12-month inflation expectations edged higher, while share expecting higher interest rates slipped from 62.0% to 61.3%.
• Overall message is mixed: consumers feel better about economy today, but confidence in what comes next is deteriorating.

Full US Conference Board Consumer Confidence release here.