Euro area inflation continues to give the ECB a headache

London (Oct 29)  The latest Eurozone CPI reading will not do anything to take the pressure off ECB President Lagarde and her colleagues. The reading came in at 4.1% year on year vs analyst expectations of 3.7% (prev 3.4%).

Looking into the report, energy is expected to have the highest annual rate in October (23.5%, compared with 17.6% in September), followed by services (2.1%, compared with 1.7% in September), non-energy industrial goods (2.0%, compared with 2.1% in September) and food, alcohol & tobacco (2.0%, stable compared with September).

In terms of geographics, Lithuania suffered the most with the annual inflation rate rising 8.2%. Month on month Belgium recorded the highest rate with an increase of 1.8%.

Prior to the reading Lloyds bank noted "That is well above the European Central Bank"s 2.0% target. At yesterday"s ECB policy update President Lagarde, while admitting that the rise inflation was greater than expected, still asserted it was likely to be temporary. We do expect "core" inflation to be unchanged at 1.9%, which might provide some solace to the ECB. Nevertheless, with inflation possibly set to rise further before its next policy meeting in mid-December the Governing Council"s unity in maintaining a "dovish" policy stance seems set to be tested."

Elsewhere we also got the latest GDP reading. GDP increased by 2.2% in the euro area and by 2.1% in the EU. Some of the biggest economies in Europe helped the increase as Austria (+3.3%) recorded the highest increase compared to the previous quarter, followed by France (+3.0%) and Portugal (+2.9%).

KitcoNews