Eurozone October preliminary CPI +4.0% vs +4.0% y/y expectedPrior +3.8%Eurozone October preliminary core CPI +2.5% vs +2.5% y/y expectedPrior +2.5%
Headline annual inflation in the euro area climbs to 4% in October, hitting that mark for the first time since September 2023. Now, that’s a doozy for ECB policymakers.
The culprit is once again higher energy prices, with energy inflation accelerating to 20.8% in October this year compared to the same month last year. Even on a monthly basis, energy prices were seen pushing up significantly in rising by 1.4%.
That being said, there were broad increases across all monthly estimates as headline prices went up by 0.4% on the month in October. The breakdown shows food prices being up 0.4% on the month and services also up 0.2% on the month.
The only good news is that core annual inflation is seen holding steady at 2.5% in October. That is unchanged from the previous month but it doesn’t mean that the ECB can rest on its laurels. Services inflation remains stubborn and is seen rising to 3.3% annually, up from 3.2% in the previous month.
As such, that will continue to keep the pressure on policymakers as inflation pressures threaten to spill over more broadly. And the bigger the jump in energy prices and the longer it holds, the greater the risk of that spreading to broader categories. In turn, that will also increase the risks of second-round effects to the inflation outlook.
So, the ECB definitely has to be watchful here as they will be up against a tough balancing act amid slowing growth momentum especially in France. That threatens stagflation risks as well, which will be a much hotter topic come next year.
This article was written by Justin Low at investinglive.com.