2026-09-12 Saturday

The September 2026 ECB staff projections put euro area HICP inflation at 3% in 2026, easing to 2.5% in 2027 and 2.1% in 2028, while real GDP growth slows to 0.9% in 2026 before recovering to 1.4% in 2027 and a modest pace in 2028. The inflation profile is not a demand story: energy is the driver, with HICP energy at 9.3% in 2026 after a negative reading in 2025, and the projections note a double-digit fourth-quarter-on-fourth-quarter energy path tied to the Middle East conflict. Core inflation is far steadier, with HICP excluding energy and food at 2.5% in 2026 and only modestly changed in 2027, so the headline overshoot is concentrated in the volatile component rather than in domestic price-setting.

Wage and cost pressure is decelerating but slowly. Compensation per employee runs at 3.3% in 2026, down from a stronger 2025 pace, and unit labour costs at 2.8%, also down from a stronger 2025 pace, with both settling at lower rates by 2028 — a disinflation path that supports the return of headline inflation to target, but only gradually. Unemployment stays low, at 6.2% in 2026 and falling further by 2028, which is why the projections do not treat the growth slowdown as a labour-market shock.

The fiscal arithmetic is where the projections carry the sharper message. The budget balance deteriorates to −3.7% of GDP in 2027, and gross debt rises over the projection horizon from the ratio recorded in 2025, with the fiscal stance loosening modestly in 2026 adjusted for NextGenerationEU before tightening modestly in 2027. Interest expenditure climbs from its 2025 share of GDP to 2.4% of GDP in 2028, and the interest rate-growth differential narrows from a negative reading in 2025 to −0.8% in 2026 — the debt-deflating cushion that has flattered euro area debt dynamics is thinning exactly as the debt ratio rises.

The method matters for how much weight the numbers bear: the September projections use a cut-off date of 19 August 2026 for technical assumptions and 28 August 2026 for euro area macroeconomic projections, with commodity paths implied by futures markets over the ten working days ending on the cut-off, and simulations run on ECB-BASE with monetary policy exogenous. The counterpoints are large. A severe Middle East scenario lifts 2027 HICP inflation into the mid-single digits and cuts real GDP growth to close to zero, with a severe-plus-jet-fuel-shortages variant a touch higher on inflation and a touch lower on growth; the central percentile band for 2027 HICP tops out well below the severe peak, while the full scenario range for 2027 inflation runs from the lower end up to that severe peak, against a much narrower spread for growth. Gross debt revisions versus June 2026 are downward across the horizon, and grow larger by 2028, and the budget balance is revised down slightly for 2025 — so the deterioration is a projection, not a revision of history. The market mechanism runs through issuance and the r-star gap: with the fiscal stance loosening in 2026 while the interest rate-growth differential narrows to −0.8%, sovereigns are issuing more into a smaller debt-deflating cushion, and the severe scenario would raise both the debt ratio path and the interest bill at once.

The Bank of Russia kept its key rate at 14% on 11 September, ending its cutting cycle. The pause rests on a jump in underlying price growth: current price growth, seasonally adjusted and annualised, reached 11.6% in July, and core inflation rose to 7%. With annual inflation at 6.3% and the target at 4%, the central bank is holding the cost of money high to keep the disinflation path toward 4% intact, a stance that keeps OFZ yields and the government's rouble funding costs elevated.

German local courts registered 2,266 applied-for corporate insolvencies in June 2026, 15.8% more than a year earlier, and 12,812 in the first half, 6.7% up and the highest half-year count since 2013. Creditor claims on those filings fell to €18.5bn, which matters for the price of money because the courts' own claim figure is the loss base that Landesbanken and Sparkassen carry into their capital planning: fewer economically significant debtors failing means less drawn loss-absorbing capital per case, even as the case count climbs. The split sits in the Destatis monthly insolvency release, whose headline is the case count; the claim total is a separate line further down. What settles whether this reaches bank funding costs is the next monthly Destatis print and whether the claim figure keeps falling while the count keeps rising.

Japan's Corporate Goods Price Index fell −0.2% month-on-month in August 2026, the first monthly decline after July's −0.2% was positive, while the year-on-year rate held at 7.6%. The monthly turn is not a story of collapsing demand: the index level slipped only to 136.1 from 136.1, and the chain-weighted variant, which strips out substitution effects in the fixed-weight Laspeyres basket, moved by the same −0.2% on the month while its annual rate edged up to 6.6%. The BoJ's Research and Statistics Department compiles both series on a base of calendar year 2020, the headline with fixed weights and the chain index on 2023 weights, so the agreement between the two measures is the load-bearing point — the August softening is broad, not an artefact of the weighting scheme.

The split between export and import prices is where the yen enters. Export prices in contract currency rose 0.6% on the month and 11.1% on the year, while import prices in contract currency fell −1% on the month yet remain up 16.7% on the year. The yen-based import index tells the same story from the other side: down −3% month-on-month but up 24.8% year-on-year, with the index level at 193.7 against 193.7 in July. The foreign exchange rate series fell −2.4% on the month, which the BoJ reads as an appreciation of the yen — the monthly decline in yen-denominated import prices is largely that translation effect, not a fall in what Japan pays abroad in the currency of invoicing.

The asymmetry matters for the policy debate. A yen that appreciated through August mechanically flatters the yen-based import series, but the annual rate of 24.8% still describes a cost shock that has been running for a year, and the contract-currency import index at 16.7% year-on-year says the underlying foreign-currency bill has not retreated. The counterpoint is the monthly direction: two consecutive monthly declines in the contract-currency import index would be the first evidence that the imported cost impulse is genuinely fading rather than being re-measured in yen. The BoJ's own note that a negative foreign exchange rate change means yen appreciation is the hinge — the same print can be read as relief on import costs or as a tightening of financial conditions for exporters, and the export price index rising 0.6% on the month suggests exporters are not yet passing the stronger yen back into foreign-currency prices.

The market channel runs through the Bank of Japan's reaction function. With producer prices up 7.6% on the year and yen-based import prices up 24.8%, the cost-push pressure that has kept upside risks to CPI alive is still in the data, even as the monthly headline turns negative. That combination — a softer monthly print against an unchanged annual rate — gives the BoJ room to describe inflation as decelerating without having to concede that the import-cost impulse has ended, which is the argument that has kept JGB yields supported at the long end. For holders of Japanese government debt, the relevant question is whether the monthly decline in the yen-based import index persists once the August currency move washes out of the base; if it does not, the annual import price rate stays the anchor for the inflation debate into the autumn.

Mongolian enterprises expect inflation to run at 10.9% in 2026 Q3 and 11.8% by 2027 Q2, both up by the same margin from the previous quarter's reading, according to the Bank of Mongolia's Business Tendency Sample Survey for 2026 Q2. The median responses are higher still, at 11.6% for the near quarter and 12.4% for the twelve-month horizon, which means the upside is not driven by a thin tail of extreme answers but sits in the middle of the distribution. The survey was conducted in June 2026 among a panel of several hundred enterprises, with expectations computed from quantitative responses using the weighted mean and a symmetric linear interpolated median, and the sentiment, employment and uncertainty indices built on the European Commission's business cycle indicator methodology with fixed sector weights.

The same survey shows activity expectations turning up even as price expectations accelerate. The Economic Sentiment Index rose by a double-digit margin to 96.1, the Employment Expectation Index climbed to 101.4 and moved into expansionary territory, and demand expectations for the coming quarter rose by a slightly larger double-digit margin to 109.1. Manufacturing sentiment reached 109.1, its first expansionary reading after eight quarters, while construction at 87.3, domestic trade at 82.5 and services at 80.8 all stayed below the level that separates expansion from contraction. The Economic Uncertainty Index fell by a double-digit margin in index points to 127.8, a decline that leaves it at a still-elevated level.

The sector detail sharpens the inflation signal: services firms report the highest expectations of any sector, at 11.2% for the three-month horizon and 12.1% for the twelve-month horizon. The survey's own caveats matter here — the expectations are built on CPI and are not a direct forecast of the inflation rate, and the sample is dominated by private limited liability companies with more than twenty years of experience, a headcount cap that excludes large employers and annual sales revenue in the billions of tugrik, so the smallest and newest firms are thinly represented. The export expectation index at 99.8 remains in contraction, and the headline sentiment index itself is still below the level that separates expansion from contraction, so the improvement in activity expectations is a move toward neutral rather than a boom.

For monetary policy the mechanism is straightforward: if firms set prices and wages against a near-term expectation of 10.9% and a twelve-month expectation of 11.8%, the Bank of Mongolia faces an inflation psychology that sits far above its target, which argues against easing and keeps the policy rate elevated. The employment and demand readings reinforce that channel by pointing to firmer hiring and demand ahead, giving firms more room to pass costs through. The offsetting force is the level of the uncertainty index at 127.8 and the still-subdued sentiment and export readings, which cap how aggressively firms are likely to invest or expand capacity.