European stocks head lower as more consumer price data adds fuel to inflation debate

The U.K. consumer price index climbed 2.5% year-over-year in June, outpacing estimates of a 2% rise as transport, clothing, and cakes led CPI higher. This added to the discussion over inflation concerns stoked up on Tuesday, when markets were met with a basket of price data from France, Germany, and the U.S. 

It was the 0.9% rise from May to June recorded by the U.S. consumer price index that captured investors’ attention in the previous session. U.S. CPI firmly outpaced analyst expectations, gaining at the fastest monthly rate since 2008 and stoking the debate over whether inflation concerns are transitory or more permanent.

“Inflation has risen ahead of economist’s expectations and is now firmly above the Bank of England’s target. However we’re still stuck in inflationary limbo, where we can’t tell if rising prices are a statistical blip, or a more concerning and permanent feature of the global economic recovery,” said Laith Khalaf, an analyst at AJ Bell.

“Things aren’t running quite as hot on this side of the Atlantic, with U.K. inflation still only around half the rate in the US. Nonetheless the direction and speed of travel is worrying,” Khalaf added.

However, the U.K.’s producer price index, which measures inflation from the perspective of producers, showed signs of cooling. U.K. PPI rose 4.3% year-over-year, down from 4.4% in the month prior and below expectations of 4.8%.

Michael Hewson, an analyst at CMC Markets, noted that “the first signs of a slowdown in inflationary pressure are likely to be seen in PPI, as companies start to see the prices they pay at the point of manufacture or delivery start to come down, as supply chain constraints ease.

Shares in Hugo Boss BOSS, +3.82% rose near 5% after the German luxury fashion group reported preliminary sales in the second quarter of €629 million ($741 million), outpacing analyst estimates by nearly €100 million. Earnings before interest and taxes of €42 million crushed expectations of around €17 million.

Barratt BDEV, +0.80% stock rose more than 1% as one of the U.K.’s largest housing developers said in a trading update that it expects full-year profit before tax to be above the top end of the range of market expectations. The group noted strong housing demand across the country.

The travel sector was taking a beating, led down by shares in TUI TUI, -3.87%, the world’s largest tourism group and an operator of hotels, airlines, and cruises. TUI stock dropped more than 3%, while airlines Air France-KLM AF, -1.05%, Lufthansa LHA, -1.12%, Ryanair RYA, -0.51%, and IAG IAG, -1.05% —the owner of British Airways—all fell along with shares in hotels giant InterContinental Hotels Group IHG, -1.03%.

Shares in major British multinationals, which do business in dollars and are sensitive to currency shifts, were broadly lower, as the U.K. inflation data saw sterling GBPUSD, +0.21% strengthen 0.3% against the dollar. Unilever ULVR, -0.90%, Vodafone VOD, -0.99%, GlaxoSmithKline GSK, -0.90%, and British American Tobacco BATS, -0.79% were among the decliners in London.