Euro zone inflation accelerated more than expected in October and could still pick up further in the coming months, bolstering the case for caution in European Central Bank interest rate cuts as price growth is not yet fully tamed.
Inflation in the 20 countries sharing the euro currency accelerated to 2% from 1.7% in September mostly on higher food and energy costs, coming above expectations for 1.9% in a Reuters poll of economists.
A more closely watched figure which strips out volatile food and energy prices meanwhile held steady at 2.7%, above forecasts for 2.6%, Eurostat said today.
Inflation has fallen quickly since hitting double digit territory two years ago and most economists see it back at the European Central Bank’s 2% target basis sometime in the first half of next year after some volatility in the final months of 2024.
This relatively quick return to target has also fuelled a debate in recent weeks, with some ECB officials arguing there was a growing risk that price growth will actually fall below target and the ECB will have to start stimulating growth to prevent excessively low inflation.
Such a dim outlook could even force the ECB to accelerate the pace of rate cuts and bolster the case for a bigger than usual step in December, some said.
This argument has yet to gain significant traction, however, and conservatives, or policy hawks in central bank-speak, have pushed back, arguing for measured, incremental steps because a long list of factors could still push prices higher.
A key concern is that inflation in services, the biggest single item in the consumer price basket remains way too fast, holding steady at 3.9%.
Wage growth is also faster than the 3% rate the ECB considers consistent with its target and households are sitting on ample savings, which could bolster consumer savings and overall growth.
Article Source – Euro zone inflation rebounds more than expected in October to 2% – RTE