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Eurozone inflation rose to 2 per cent in October, meeting the European Central Bank’s target and lowering the odds of a half-point rate cut in December.
The annual figure from Eurostat, the EU’s statistics bureau, was slightly above expectations of 1.9 per cent from analysts polled by Reuters.
“The target is in sight but I’m not going to tell you that inflation is defeated yet,” ECB president Christine Lagarde told French daily Le Monde in an interview that was published on Thursday ahead of the October numbers.
Combined with Wednesday’s stronger-than-expected growth data for the third quarter, the rise in inflation undermines the case for a big rate cut in December, a move some analysts have begun to predict in recent weeks. Unemployment in the bloc in September was stable at an all-time low of 6.3 per cent, according to Eurostat.
“All of these data clearly support a more hawkish policy,” Tomasz Wieladek, an economist at T Rowe Price, wrote in a note to clients, referring to a tighter monetary policy that emphasises low inflation over growth. He added that traders were now pricing in a lower probability of a half-point cut in December.
The euro edged higher following the release, climbing 0.1 per cent against the US dollar to $1.087.
The ECB reduced borrowing costs by a quarter percentage point for the second month in a row in October after inflation had fallen quicker than expected and concerns over weak economic dynamics had intensified.
Closely watched core inflation, which excludes volatile food and energy prices and is considered a better gauge of underlying price pressures, remained steady at 2.7 per cent, still well above the ECB’s medium-term target.
Services price inflation — another component the central bank is keeping a close eye on — remained elevated at 3.9 per cent. Referring to sticky services sector inflation hovering well above the ECB’s inflation target, Lagarde told Le Monde that “prudence is warranted” on easing interest rates.
Last month, annual inflation was 1.7 per cent, falling below the ECB’s target for the first time in more than three years.
The ECB has said it expects headline inflation numbers in the final months of the year to rise, partly due to the impact of a temporary fall in energy prices a year ago.
Additional reporting by Ian Smith in London
