Euro area: Core inflation risks rising – Commerzbank

Commerzbank’s Dr. Vincent Stamer notes that Euro area headline inflation rose to 4.0% in October, its highest level in three years, with the core rate steady at 2.5%. The report highlights broad-based price increases beyond energy and expects higher energy costs to be passed through, pushing core inflation towards or above 3% and potentially forcing an ECB rate hike next year.

Core inflation seen exceeding ECB target

"In October, the inflation rate in the euro area broke the 4% mark for the first time in three years. After the inflation rate had already risen to 3.8% in September, it climbed to 4.0% in October, as expected. This was driven not only by energy prices, but by a broad-based increase in prices across the entire consumer basket."

"In light of more expensive energy, companies are likely to increasingly raise the prices of other goods and services in the coming months."

"We expect many companies to pass the higher energy prices on to their customers in the coming months. In addition to more expensive fuels, the increased price of natural gas is also likely to raise costs for electricity, for example, in the coming quarters."

"Furthermore, the 3-month annualized core inflation rate stands at nearly 3% – and is thus above the year-on-year rate (Chart 2). This is another indication of a rising core rate in the coming months. By the middle of next year, the core rate could even climb above 3%."

"This would exceed the ECB's expectations, thereby increasing the risk of another interest rate hike next year."

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