Inflation in the Eurozone escalated to 2% in October, hitting the European Central Bank’s (ECB) target. This development strengthens the argument for a modest quarter-point rate reduction this December. The yearly figure released by Eurostat, the EU’s statistical department, surpassed the 1.9% analysts forecasted, as polled by Reuters. The previous month, inflation was at 1.7%, the first time it dipped below the ECB’s target in over three years.
The soar in inflation is fuelled by better-than-projected third-quarter economic growth figures announced last Wednesday. These numbers dilute the argument for a significant rate cut by the ECB, who was earlier pressurized to make such a move due to signs of escalating economic difficulties in the currency region. Post this inflation figure release, markets assigned an approximately 80% likelihood to a quarter-point cut, a rise from the 60% chance predicted before the growth figures release.
The Eurozone’s unemployment for September remained at a record low of 6.3%. Tomasz Wieladek, an economist at T Rowe Price, stated in a client note that all these data firmly advocate for a more austere policy. Post the release, euro’s value increased marginally, by 0.1% against the US dollar to $1.087. Borrowing costs were trimmed by a quarter of a percentage point for the second successive month in October by the ECB, as inflation fell more rapidly than anticipated, and concerns over weak economic trends heightened.
Core inflation, which eliminates unstable food and energy prices to better gauge underlying price pressures, held steady at 2.7%, a figure still significantly above the ECB’s mid-term target. Service price inflation persisted at an elevated level of 3.9% in contrast. The ECB indicated that it anticipates headline inflation numbers to increase in the year’s final months, partially due to a momentary drop in energy prices from a year ago. Copyright The Financial Times
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