Arrangement of pumpkins in the Netherlands, on October 27, 2024.
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Inflation in the 20-nation euro zone rose to 2% in October, preliminary figures released by statistics agency Eurostat showed Thursday.
Economists polled by Reuters had expected a headline figure of 1.9%. The September headline reading was revised downward to 1.7% from 1.8% on October 17, below market expectations.
The biggest increase in the headline rate came from food, alcohol and tobacco, where prices rose to 2.9% from 2.4%.
Core inflation, which excludes volatile components along with energy prices, was unchanged at 2.7%, slightly higher than expectations of 2.6%. Services inflation – an important measure of domestic price pressures – also remained at 3.9%.
The euro rose 0.17% against the US dollar shortly after the release, trading at a two-week high of $1.0873.
Thursday’s fresh inflation print is seen as crucial to judging whether the European Central Bank may consider implementing a jumbo half-percentage-point cut in interest rates at its next meeting in December.
The central bank has so far cut rates three times this year, making quarter-point increases that all took the central bank’s key rate from 4% to 3.25%.
The market is currently pricing in a 25-basis-point reduction in December.
euro zone growth
Traders also considered the latest growth figures for the euro area, which showed a better-than-expected 0.4% expansion in the third quarter, although analysts predicted weakness ahead.
The ECB said at the October meeting that the process of disinflation is “well on track” and the sluggishness in the economic activity of the euro zone has added to the confidence that inflation will not resurge dramatically.
“Hotter euro zone inflation, stronger growth and record low unemployment are eliminating bets for a 50 (basis point) cut,” Kyle Chapman, foreign exchange market analyst at Ballinger Group, said in a note.
Chapman said that, while a rise in consumer prices is expected later in the year, services inflation remains sticky.
“A big concern underpinning the risk of inflation undershooting the target is a potential tipping point with the labor market, surprising resilience that could be at risk of unwinding clearly in the hoarding of labor if consumption worsens. That concern is no longer significant,” Chapman stressed, pointing to the growth figures and labor this week.
“Back-to-back 25 (basis point) movement is the way to go. The need for below-neutral rates to rescue the contracting euro zone economy disappeared from the discussion, and that negates the need to hasten the easing cycle, especially with inflation services struggling to come unstuck.”
