The Eurozone’s disinflation trend continues, as indicated by September’s data showing a decrease in inflation across more than half of the Harmonised Index of Consumer Prices (HICP) items. Despite this, inflation remains above the European Central Bank (ECB)’s target, posing potential complications for core inflation and headline inflation’s decline, particularly due to possible geopolitical factors leading to higher energy prices.
In September, annual headline inflation fell to 4.3%, down from 5.2% in August and significantly lower than the 9.9% recorded last September. This was largely 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%.
Data also revealed that over half of the HICP items showed a three-month inflation rate below the ECB’s equivalent target, suggesting a broad-based disinflation across the Eurozone.
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. A recent rebound in energy prices has raised concerns due to its direct impact on households’ purchasing power and companies’ cost structures, along with potential spillover risks if it indicates a new trend.
Services displayed mixed trends; some categories had higher annual inflation than last year while others declined. Core inflation showed promise with two of the last three months having three-month inflation slightly below the target at 0.4%, and one slightly above at 0.6%.
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 potential for higher energy prices due to geopolitical factors could slow down this process.
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