Eurozone - Inflation on the firm side, puts 50bp discussion on hold

The main driver of the uptick in inflation was energy. Energy disinflation slowed from -6.1% in September to -4.6% on the year on the back of less favourable base effects and gas and electricity prices moving slightly higher over the course of the month, in part due to geopolitical turmoil. The main upside surprise compared to our forecast came from food inflation, which accelerated to 2.9% y/y, up from 2.4% in September. Services inflation stayed at 3.9%, similar to last month at stubbornly high levels and therefore remains in focus for the ECB. On a 3m/3m seasonally adjusted basis we see a slight easing in services which indicates some easing in the months to come. Looking ahead, inflation is likely to edge higher again in the near-term as the energy base effects continue to exert upward pressure on headline inflation. Services inflation is expected to remain elevated. However, in time, as the weaker economic backdrop will lower wage growth as the labour market softens, services inflation should ease as well.

Inflation and firmer GDP put 50bp discussion on hold – Following yesterday’s firmer than expected eurozone GDP release (read here) and today’s inflation print, the discussion of whether the ECB should accelerate the pace of rate cuts from 25bp to 50bp, as was suggested by some governing council members in Washington, seems to be put on hold for now. Indeed, we stick with our view that the ECB will cut interest rates by 25bp at the December meeting. In 2025 we expect the ECB to continue cutting interest rates by 25bp at each meeting until neutral levels (1.5% in our view) are reached.