Eurozone inflation accelerated quicker than expected in October, raising questions over the European Central Bank’s approach to interest rate cuts.
Inflation rebounded to 2%, the ECB’s target, up from the 1.7% print in September.
Nicolas Sopel, head of macro research and chief strategist at Quintet Private Bank, said that, at first glance, it seems that the European Central Bank (ECB) could turn more cautious following this morning’s data release.
“That said, inflation remains at target, and the ECB said it was expecting a slight rebound due to less favourable base effects in energy. In essence, the relatively muted market reaction to inflation suggests little concern about the path of interest rates for now.
“In addition, while GDP growth also surprised to the upside in the third quarter of 2024, it was partly due to the Olympic Games boost experienced in France, a positive contribution from the volatile growth in Ireland, and the positive surprise of Germany dodging a recession, the economic momentum remains rather sluggish.
“Looking forward, the purchasing managers’ indices continue to show that the manufacturing sector is in recession, while services activity eases and is tepid at best. With elevated saving rates remaining and the impact of lower interest rates expected to take time to feed through to the economy, growth is likely to decelerate mildly in the coming quarters.
“As such, as we see inflation against the backdrop of this slow growth environment, we continue to expect the ECB to proceed with four-to-five interest rate cuts between now and end-2025.”
This article originally appeared in our sister publication, Portfolio Adviser
