Eurozone Disinflation Trend Continues with Inflation Above ECB Target
Eurozone’s Disinflation Trend Persists
The Eurozone continues to experience disinflation, with September’s data revealing a decrease in inflation for over half of the items in the Harmonised Index of Consumer Prices (HICP). Although inflation remains above the European Central Bank (ECB)’s target, potential complications arise for core inflation and the decline of headline inflation due to geopolitical factors leading to higher energy prices.
Headline Inflation Declines
In September, annual headline inflation dropped to 4.3%, down from 5.2% in August and significantly lower than the 9.9% recorded in the same period last year. This decline was primarily driven by a reduction in energy prices by 4.6%, a dip in industrial goods excluding energy from 4.7% to 4.1%, and a decrease in services inflation from 5.5% to 4.7%.
Broad-Based Disinflation Across the Eurozone
Data indicates that more than half of the HICP items displayed a three-month inflation rate below the ECB’s target. This suggests a broad-based disinflation trend across the Eurozone.
Variations in Inflation Across Categories
However, there were variations across major HICP categories. Headline, food, non-energy industrial goods, and energy inflation have all significantly declined since October last year but remained above the target in September 2023, excluding energy inflation. Concerns have been raised due to a recent rebound in energy prices, which directly impact households’ purchasing power and companies’ cost structures. The potential spillover risks associated with this trend are also a cause for concern.
Mixed Trends in Services Inflation
Services displayed mixed trends, with some categories experiencing higher annual inflation compared to the previous year, while others witnessed a decline. Core inflation showed promise, with two of the last three months having a three-month inflation slightly below the target at 0.4%, and one slightly above at 0.6%.
Future Outlook
Looking ahead, if monthly core inflation aligns with the ECB’s target, it would take until September next year for annual inflation to return to 2%. However, the current disinflation trend and the potential for higher energy prices due to geopolitical factors could slow down this process.
This article was written to provide insights on the Eurozone’s disinflation trend and its potential implications. It aims to offer a comprehensive analysis of the current economic situation without relying on specific external sources.
