European Central Bank pursues gradual tightening – Nordea

Euro-area headline inflation reached 4.0% in October, largely reflecting higher energy prices and a recovery in food prices, according to Nordea’s report. With core inflation unchanged at 2.5%, second-round effects have remained modest so far. Although tighter financing conditions and weaker economic activity pose downside risks, Nordea continues to forecast two further ECB rate hikes and regards the case for gradual tightening as clear.

Energy Drives Inflation Higher as Further ECB Rate Hikes Remain in View

"Euro-area flash inflation rose to 4.0% in October (3.8% in September, 4.0% consensus), double the ECB’s target."

"High inflation continues to be driven by energy prices, which rose by 20.8% y/y and now account for around half of headline inflation."

"Food price inflation, which fell to surprisingly low levels in the third quarter, rebounded to 1.6% and could be an early indication of second-round effects from high energy prices."

"Core inflation remained at 2.5% (consensus 2.5%), although both services inflation (3.3%) and non-energy industrial goods inflation (1.2%) accelerated slightly."

"While many countries reported higher transport services inflation, the available information otherwise points to very limited second-round effects in the services sector."

"Tighter financing conditions and weaker economic development are downside risks to our ECB baseline, but the case for further hikes remains rather clear for now."

"The central bank still expects to see gradually broadening price pressures, which supports the case for gradual monetary tightening."

"The recent price data does not change our view of two further ECB rate hikes."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)