Eurozone inflation ticked up slightly more than expected in October. Core inflation remained stable at 2.7%, also slightly higher than expected. After the rapid decline in September, this provides a reality check about the eurozone's disinflationary process.
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The European Central Bank frequently used the motto that 'the last mile is the hardest' when it comes to inflation fighting before summer, but hasn't done so recently. The slow decline in core inflation gives us the feeling that there is still some truth to that. The labour market remains tight at the moment, which still adds to wage pressures. Analysts expect wage growth to come down over the course of 2025 as labour market tightness continues to ease, but experts aren't seeing this effect just yet.
In fact, unemployment came in at 6.3% in September – a historic low since the eurozone was established in 1999. This indicates that inflationary pressures from the job market are not yet a thing of the past. Including yesterday's accelerating GDP growth figures, this week's data has provided some counterweight to the ECB's dovish view presented on inflation at the October press conference. ECB President Christine Lagarde referred to all data pointing in the same direction: downward.
The job market remains strong, but with profit growth down, we expect this to affect the labour market negatively over the course of next year. This keeps demand driven inflation down, which should help to bring inflation – including core – down to target in 2025. Still, upside risks to the outlook remain as labour market pressures have yet to fade and wage growth remains elevated for now.
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