Euro-Area Inflation Unexpectedly Slows as Economy Powers On

Euro-area inflation unexpectedly slowed in October despite the bloc’s strengthening economy, underlining why the European Central Bank last week kept its exit from monetary stimulus wide open.

Price growth cooled to 1.4 percent from 1.5 percent in September, falling short of the median forecast of economists in a Bloomberg survey. In a further blow to the ECB’s drive to boost inflation, the core rate dropped below 1 percent for the first time in five months.

The euro stayed lower against the dollar after the report and was down 0.2 percent at $1.1631 as of 11:02 Frankfurt time.

The inflation data was published alongside third-quarter gross domestic product figures, which showed faster-than-forecast 0.6 percent growth. That’s an 18th quarterly expansion. On a year-on-year basis, GDP hit 2.5 percent, the best since early 2011.

The latest economic figures show the dilemma facing the ECB. Even with confidence at its highest in almost 17 years and robust growth helping to create more jobs, a sustained price pickup remains elusive. President Mario Draghi took note of the euro area’s improved prospects after the Governing Council’s Oct. 26 policy meeting, while stressing the need for a “patient and persistent” approach toward exiting the central bank’s stimulus program.

Core inflation, which excludes volatile items such as food, energy and tobacco, dropped to 0.9 percent in October from 1.1 percent. Economists had forecast that the rate would remain unchanged.

With a goal of sustaining inflation just below 2 percent without stimulus support, the ECB decided to continue buying public and private debt through September 2018, at a reduced pace of 30 billion euros ($35 billion) a month. Respondents to the ECB’s Survey of Professional Forecasters see inflation averaging 1.9 percent in 2022.

Bloomberg

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Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell