Scene from a pumpkin field in the Netherlands, October 27, 2024.
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According to preliminary data released by Eurostat on Thursday, inflation in the 20-country eurozone climbed to 2% in October.
Economists surveyed by Reuters had anticipated a composite inflation rate of 1.9%. Additionally, the inflation rate for September was revised down from 1.8% to 1.7%, falling short of market predictions.
Notably, the most significant price rises were seen in food, alcohol, and tobacco categories, where inflation surged from 2.4% to 2.9%.
The core inflation rate, which omits volatile items like energy, held steady at 2.7%, slightly above the expected 2.6%. Inflation in the services sector, a key measure of domestic price pressures, remained unchanged at 3.9%.
In response to the inflation data, the euro gained 0.15% against the US dollar, rising to $1.087, marking its highest point in two weeks.
This new inflation information is considered vital for determining if the European Central Bank (ECB) may lower interest rates by as much as 0.5 percentage points in its upcoming December meeting.
This year, the central bank has already implemented three quarter-point interest rate cuts, reducing the key policy rate from 4% to 3.25%.
Currently, the market anticipates an additional 25 basis point reduction in December.
Economic Growth in the Eurozone
Market participants are also reviewing the latest growth statistics for the eurozone. The economy grew by 0.4% in the third quarter, surpassing expectations, despite analysts anticipating a slowdown.
During its October Governing Council meeting, the ECB remarked that the process of curbing inflation was “on track” and expressed increased confidence that inflation would not dramatically escalate due to weak economic activity in the eurozone.
Kyle Chapman, a foreign exchange market analyst at Ballinger Group, noted: “With rising inflation in the eurozone, robust economic growth, and historically low unemployment, the idea that a 50 basis point cut is likely seems to have receded.”
Chapman cautioned that while consumer prices are likely to increase as the year ends, services inflation remains persistently high.
He also acknowledged concerns about inflation potentially falling below target, instigated by a shift in the labor market, where a reduction in consumption could threaten the strong resilience of the labor market. However, this issue appears less pressing now, in light of recent growth and employment data.
“A steady approach of 25 basis points seems most suitable. The urgency to implement sub-neutral interest rates to boost the contracting euro area economy has diminished, particularly given the easing cycle in eurozone nations.” He emphasized that service inflation remains a challenge to overcome.
