A series of economic data to be released this week in the euro area will provide key information for the European Central Bank to decide whether to resume interest rate cuts in September. According to the median forecast of 36 economists, the July CPI report for the eurozone, which will be released on Wednesday, may show that the overall inflation rate will reach 2.5% for the second consecutive month. Core inflation indicators, excluding highly volatile items such as energy and food, may provide some relief, and analysts expect the year-on-year growth rate of core CPI in the euro area in July to fall slightly to 2.8%.

Since the European Central Bank maintained interest rates this month, officials have been emphasizing that the next decision in September depends on a series of economic data to be released at that time. Investors expect the possibility of a rate cut by the European Central Bank in September to be close to 90%.

Eurozone second-quarter economic growth data will also be released this week. Eurozone GDP data for July may show that the economic recovery from a few months of stagnation is not as strong as originally expected. According to a survey, economists expect the quarter-on-quarter growth of Eurozone GDP to be 0.2%, lower than the growth rate of 0.3% in the first quarter. The economic growth momentum in Germany, Italy, and Spain is expected to have slowed down.

European Central Bank President Lagarde emphasized the importance of this information. She announced this month that the next decision is "very open." European Central Bank staff will also develop a new set of economic forecasts for this. She said,"It is clear that from now until September, we will receive a lot of information. I am worried that this summer will be a bit busy."

Since then, others have doubled down on this sentiment. European Central Bank Deputy Governor Luis de Guindos said:"From a data perspective, September is a more convenient month to make decisions," while European Central Bank Commission and Slovak Central Bank Governor Peter Kazimir suggested waiting for the "anticipated September 'check-up.'" No member of the European Central Bank Management Committee plans to speak this week, which will allow the market to draw its own conclusions from these numbers.

Bloomberg economist Ana Andrade said:"Our basic assumption is that the data released by the European Central Bank during the summer until the policy meeting in September will pave the way for another rate cut at that time. Favorable energy price base effects should bring the overall CPI close to the European Central Bank's 2% target in August, and there may be more evidence that potential price pressures are easing, including service industry inflation and wage data."

The first round of data released last week showed unexpectedly negative performance of the Eurozone. S&P Global's business survey shows that private sector economic output may not have grown in July, while Ifo's monthly survey shows that the sentiment of German companies is deteriorating. The new picture of weak recovery and stubborn price pressures may pose challenges for European Central Bank officials. But data trends are more important than usual, adding extra weight to inflation data to be released in mid-July and August.

Currently, service industry inflation is still a key indicator because labor costs play an important role in the industry. Isabel Schnabel, a member of the European Central Bank Executive Committee, said that the continued existence of this inflation indicator's stickiness is the core reason that has proven to be difficult in the final mile. She said recently: "Service industry inflation has repeatedly been unexpected, at least one reason that needs to be carefully observed."

Carsten Brzeski, an economist at ING Group, pointed out that in June, service industry inflation growth still maintained at 4.1%, more than twice the overall inflation target, making the service industry a focus before the European Central Bank's interest rate decision in September. He said:"If I have to pick out a few key data, I think the inflation forecast for September and the actual service industry inflation data for the next two months will be the most important data that can tilt the balance to one side."

The European Central Bank currently expects the inflation rate to reach the 2% target in the last quarter of 2025. Brzeski said that it is important that the latest data after the summer still shows that the inflation rate at that time is 2% or lower.

Tomasz Wieladek, an economist at T. Rowe Price, also believes that price pressure in the service industry may eventually play a decisive role. He said:"If they get two more good data, this will be a strong signal against deflation and will support the interest rate cut in September." He said that if economic growth data remains weak, it may even be possible to discuss "accelerating the pace or increasing the intensity of interest rate cuts in September."

Wages are still a core issue because slowing the economy to a more sustainable level is seen as a prerequisite for inflation to return to target levels. When the European Central Bank announces negotiated wage indicators and the European Union Statistical Bureau publishes employee average wage data, recent developments will become clearer. But officials may pay attention to more forward-looking indicators, such as the central bank's own wage tracker index, to determine whether expected interest rate cuts will become a reality.

Wieladek said:"We need to see a lot of evidence from multiple indicators before the European Central Bank can significantly change its wage forecast for 2025. This summer, the importance of wage information will decrease."

Editor/ping