As a matter of course, I employ sarcastic derision to document new evidence that inflation remains “unexpectedly” persistent across developed economies.

Part of the joke is the number of times I have to employ it. How many times can inflation come in higher than consensus before it isn’t “unexpected” or a “surprise” anymore?

By now, though, the joke’s exhausted. The only thing market observers are less surprised by than incremental evidence of persistent inflation is economists’ penchant for hoping against hope.

With that in mind, eurozone headline inflation rose for the first time in seven months in April, data released on Tuesday showed. Economists had expected no change in the headline measure, which dropped sharply in March as the region began to lap the 2022 war comps.

While hardly a large upside surprise, April’s 7% YoY headline print did underscore that base effects can only get you so far. The steady decline in the main gauge from harrowing highs in the double-digits was courtesy of falling gas prices, and everyone knew the March annual comp would precipitate a big drop. But energy prices are volatile and so are geopolitics. As Europe learned the hard way in 2022, there’s no guarantee that energy costs will remain favorable.

The financial media focused on the 0.1pp drop for core inflation. At “just” 5.6%, core is now… well, that same 0.1pp below record highs. That minuscule drop in the YoY pace will probably be cited by the ECB for what’s expected to be a step-down to 25bps rate-hike increments later this week. Core inflation rose from March and do note: Services inflation in Europe rose on both a YoY and MoM basis in April, according to Tuesday’s figures.

“Looking ahead, inflation developments in the eurozone will be determined by two opposing forces: On the one hand, negative base effects on energy and food prices as well as dropping selling price expectations in industry argue for a further drop in headline inflation,” ING’s Carsten Brzeski said. “On the other hand, still high selling price expectations in services as well as wage increases are likely to fuel underlying inflationary pressures.”

That latter point is obviously key. The ECB is now staring at the opposite situation as the predicament that confronted policymakers in 2022. Last year, inflation in the EU was a function of war-related gains in energy and food prices, something the ECB had little, if any, power to control. Eventually, the war premium came out of natural gas prices thanks in part to a mild winter, and now the annual rate of food price inflation seems to be flattered by the war comp, but inflation has migrated to services and wage-setting. The good news: At least monetary policy can act on that sort of inflation by curbing demand. The bad news: It’s very difficult to bring down inflation on the services side of the economy, and nearly impossible to painlessly dislodge from wage-setting dynamics.

Meanwhile, and just as importantly for this week’s policy meeting, the ECB’s quarterly Bank Lending Survey showed credit standards “tightened further substantially” during Q1. These reports are voluminous, and sometimes, if you don’t clear your cookies and cache first, the ECB will block you from accessing the data, so if you don’t want to reset your browser, you can’t work with the numbers. But the bottom line is that standards tightened and demand for credit fell. As the ECB put it,

Euro area banks tightened further substantially their credit standards for loans or credit lines to enterprises in the first quarter of 2023, i.e. the percentage of banks reporting a tightening of credit standards was substantially larger than the percentage of banks reporting an easing (net percentage of banks of 27%, after 27% in the fourth quarter of 2022). The net tightening in credit standards was stronger than banks had expected in the previous quarter and points to a persistent weakening of loan dynamics. Looking at developments from a historical perspective, the pace of net tightening in credit standards for the last two quarters is the largest seen since the sovereign debt crisis (net percentage of 35% recorded in the fourth quarter of 2011).

Firms’ net demand for loans fell strongly in the first quarter of 2023. The decline in net demand was stronger than expected by banks in the previous quarter and the strongest since the global financial crisis. The general level of interest rates was reported as the main driver of reduced loan demand, in an environment of monetary policy tightening. Fixed investment also had a strong dampening impact while the impact of inventories and working capital turned broadly neutral, after having previously had a positive impact on loan demand. In the second quarter of 2023, banks expect a further, albeit smaller net decline in demand for loans to firms.

Plainly, that suggests the ECB’s efforts to brake (not break) the economy are having an impact, or at least that the monetary policy transmission channel is functioning as it should. As Brzeski quipped, “the transmission is strong with this one.”

Finally, M3 growth in Europe was just 2.5% in March, down from 2.9% in February and the slowest pace in nearly a decade.

Recall that monetarism made a comeback during the pandemic, when the explosion in money supply growth presaged surging inflation.

Now, the opposite situation is unfolding. Annual growth rates for broad monetary aggregates in the EU, the UK and particularly in the US, with M2, are collapsing. From a monetarist perspective, that should presage disinflation.

All in all, Tuesday’s figures out of the EU will be seen as evidence in support of a slower rate-hike cadence. But coming full circle, nobody should be surprised if European headline and core inflation remain volatile and elevated, respectively, for the foreseeable future. The former is hostage to energy price developments and the latter to services and wage-setting, where price pressures are notoriously sticky.

Some might point to very “low” 12-month rates in Luxembourg, Cyprus and Belgium or, more meaningfully, headline Spanish inflation at just 3.8% (versus 8.3% in April of 2022), but given disparate fiscal dynamics, country-specific subsidies aimed at shielding households from the worst of the war-driven shocks and the sheer impossibility of accounting for anything and everything that might be impacting price growth across what’s now a 20-nation bloc, I think it’s fair to point to headline CPI of 7.6% in Germany, 6.9% in France, 8.8% in Italy, 9.6% in Austria and 6.9% in Portugal on the way to assessing that inflation is a pervasive problem.