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 emphasized that the next decision in September depends on a series of economic data that will be released at the time. Investors expect the likelihood of a rate cut by the European Central Bank in September to be close to 90%.

This week will also release the euro zone's second-quarter economic growth data, which may show that the momentum of the economic recovery from months of stagnation is not as strong as initially expected. According to the survey, economists expect the eurozone's second-quarter GDP to increase by 0.2% quarter-on-quarter, lower than the first quarter's growth rate of 0.3%. Economic growth momentum in Germany, Italy and Spain is expected to have slowed down.

European Central Bank President Lagarde emphasized the importance of these data, saying this month that the next decision was "wide open." ECB staff will also develop a new set of economic forecasts for this purpose. She said: "It is clear that we will receive a lot of information from now until September. I am afraid it will be a bit busy this summer."

Since then, others have turned their views on this sentiment. European Central Bank Vice President Luis de Guindos said:"From a data perspective, September is a more convenient month to make decisions," while European Central Bank committee and Slovak Central Bank Governor Peter Kazimir suggested waiting for the "much-anticipated'health check' in September." The European Central Bank Governing Council has no members planned to speak this week, which will allow the market to draw its own conclusions about these numbers.

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

The first round of data released last week showed unexpectedly negative results for the eurozone. A commercial survey conducted by S&P Global showed that the private sector economic output in July may not have increased, while Ifo's monthly survey showed that the sentiment of German companies is deteriorating. The new picture of lackluster recovery and stubborn price pressures may pose challenges for European Central Bank officials. But the trend of data is more important than usual, adding extra weight to inflation data to be released in mid-July and August.

Currently, service sector inflation is still a key indicator, as labor costs play an important role in this industry. Isabel Schnabel, a member of the European Central Bank's executive committee, said that the continued existence of this inflation indicator's stickiness is one of the core reasons that has been proven difficult in the last mile. She said last week:"Service sector inflation repeatedly surprises, at least one of the reasons that needs to be carefully observed."

Carsten Brzeski, an economist at ING Group, pointed out that service sector inflation growth remained at 4.1% in June, more than twice the overall inflation target, making the service sector 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 estimate in September and the actual service sector inflation data in the next two months will be the most important data, which 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 the inflation rate at 2% or lower.

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

Wages are still a core issue, as slowing the economy to a more sustainable level is seen as a prerequisite for inflation to return to the target level. When the European Central Bank announced the benchmark salary index and the EU Statistics Bureau released data on average employee salaries, the recent developments will become clearer. But officials may focus on more forward-looking indicators, such as the central bank's own wage tracker indicator, to determine that expected interest rate cuts will become a reality.

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

Editor/ping