Inflation in the Eurozone rose at a slightly quicker rate than anticipated in October, driven by a resurgence in food and drink prices. According to new 'flash' data from Eurostat, inflation climbed back up to 2.0 per cent, an increase from September's 1.7 per cent and marginally above market expectations.
The report revealed that the annual rate of inflation for food, alcohol and tobacco accelerated to 2.9 per cent, up from 2.4 per cent, following a 0.7 per cent month-on-month rise. Services inflation, a key indicator for central bankers, remained static at 3.9 per cent, while energy prices continued to exert downward pressure on the headline rate, as reported by .
Fresh unemployment figures were also released this morning, indicating an unexpected decrease in joblessness to 6.3 per cent, meaning unemployment across the Eurozone remains at record lows. These figures, released a day after surprisingly robust growth data, suggest it is less likely that the European Central Bank (ECB) will hasten the pace of rate cuts in the coming months.
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During the ECB's last meeting, officials expressed concerns about the Eurozone's weak economic performance while acknowledging ongoing progress on inflation. This implied that rate-setters were more worried about the bloc's slow growth prospects than any inflationary surge.
Consequently, traders speculated that the ECB would support a 50 basis point cut in December.
The eurozone's economy outpaced expectations with a growth of 0.4 per cent in the three months leading to September, which is double what economists had anticipated.
Given the robust growth, coupled with higher inflation and low unemployment rates, analysts believe that the European Central Bank (ECB) is unlikely to endorse a larger rate cut.
Kyle Chapman, FX markets analyst at Ballinger Group, commented that the statistics effectively "wipe out" the possibility of a 50 basis point cut. Meanwhile, experts at Pantheon Macroeconomics view the economic data as a "big blow" to those hoping for a more substantial reduction.
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Despite rising inflation, analysts predict that it won't impede the ECB from slicing interest rates.
Neil Birrell, Chief Investment Officer at Premier Miton Investors, expressed that "gradual rate cuts would make sense".