European Central Bank: Gradual tightening path – Nordea

Nordea’s report highlights that Euro-area headline inflation rose to 4.0% in October, driven largely by energy and a rebound in food prices. Core inflation stayed at 2.5%, with modest second-round effects so far. Nordea expects two more ECB rate hikes, noting downside risks from tighter financing conditions and weaker economic activity but still seeing a clear case for gradual tightening.

Inflation drivers and ECB outlook

"Euro-area flash inflation rose to 4.0% in October (3.8% in September, 4.0% consensus), double the ECB’s target."

"High inflation continues to be driven by energy prices, which rose by 20.8% y/y and now account for around half of headline inflation."

"Food price inflation, which fell to surprisingly low levels in the third quarter, rebounded to 1.6% and could be an early indication of second-round effects from high energy prices."

"Core inflation remained at 2.5% (consensus 2.5%), although both services inflation (3.3%) and non-energy industrial goods inflation (1.2%) accelerated slightly."

"While many countries reported higher transport services inflation, the available information otherwise points to very limited second-round effects in the services sector."

"Tighter financing conditions and weaker economic development are downside risks to our ECB baseline, but the case for further hikes remains rather clear for now."

"The central bank still expects to see gradually broadening price pressures, which supports the case for gradual monetary tightening."

"The recent price data does not change our view of two further ECB rate hikes."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)