Pumpkin display in the Netherlands, on October 27, 2024.
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Inflation in the 20-nation euro zone rose to 2% in October, preliminary figures from statistics agency Eurostat showed on Thursday.
Economists polled by Reuters had forecast a total of 1.9%. The headline reading for September was revised downward to 1.7% from 1.8% on October 17, below market expectations.
The largest increase in the overall rate came from food, alcohol and tobacco, where price increases accelerated from 2.4% to 2.9%.
Core inflation, which excludes these volatile components as well as energy prices, was unchanged at 2.7%, slightly above the expected 2.6%. Service sector inflation – a key indicator of domestic price pressures – also remained steady at 3.9%.
The euro rose 0.17% against the U.S. dollar shortly after the release, trading at a two-week high of $1.0873.
Thursday's current inflation pressures are seen as crucial in assessing whether the European Central Bank might consider a massive half-percentage point cut in interest rates at its next meeting in December.
The central bank has cut interest rates three times so far this year, increasing them by a quarter point each time, raising the central bank's overall base rate from 4% to 3.25%.
Markets are currently pricing in a further 25 basis point reduction in December.
Growth in the Eurozone
Traders are also considering the latest euro zone growth figures, which showed better-than-expected growth of 0.4% in the third quarter, although analysts predicted further weakness.
At its October meeting, the ECB said the process of tackling inflation was “well on track” and that sluggish economic activity in the euro zone had boosted its confidence that inflation would not rise dramatically again.
“Higher Eurozone inflation, stronger growth and record low unemployment are wiping out bets on 50.” [basis point] Retrenchment,” Kyle Chapman, foreign exchange market analyst at Ballinger Group, said in a note.
Chapman said that while consumer price growth was expected to pick up towards the end of the year, service sector inflation remained stubborn.
“A major concern underpinning the risk of inflation undershooting the target was a potential tipping point in the labor market, whose surprising resilience as consumption deteriorates could risk labor hoarding falling sharply. This concern is no longer as significant,” Chapman stressed, pointing to this week's growth and jobs numbers.
“25 in a row [basis point] Moving is the way to go. The need for below-average interest rates to rescue a shrinking Eurozone economy is disappearing from the discussion, and that negates the need to accelerate the easing cycle, particularly given that service sector inflation is struggling to stall.”
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