Inflation in the 18 countries sharing the euro edged up slightly in October, a first estimate by the European Union’s statistics office showed yesterday, giving some hope to policy makers that price deflation can be avoided.
Eurostat said consumer prices in the eurozone rose by 0.4 per cent in October, in line with market expectations, the day after inflation in Germany, Europe’s largest economy, slowed in October to 0.7 per cent, its lowest reading since May.
The euro initially strengthened against the dollar and the pound following the release of the data but quickly gave up these gains and remained below the levels seen at the start of the trading session.
“There was some speculation leading up to the release that inflation might have been stable, mainly because of the German inflation numbers yesterday, but it rose nevertheless,” Nick Kounis, head of macro research at ABN AMRO, said.
The European statistics office said prices rose fastest for services, 1.2 per cent, followed by the 0.5 per cent increase for food, alcohol and tobacco.
Unprocessed food prices fell 0.1 per cent year-on-year in October while energy was 1.8 per cent cheaper, a slowdown in the rate of decline from September when prices for these goods dropped 0.9 and 2.3 per cent respectively.
Excluding unprocessed food and energy, prices rose 0.8 per cent in October, a stable rate from September. This number is referred to as core inflation by the European Central Bank.
The ECB, which has a mandate to keep inflation below but close to 2 per cent, has committed to an expansionary policy, including an asset-buying plan, and said it was considering further measures if needed.
The better-than-forecast economic sentiment figures out on Thursday, which also hinted at higher inflation expectations by consumers and producers alike, may give the central bank an incentive for holding off with further policy action before the end of the year.
“Looking forward, we think that inflation is likely to remain at very low levels in the coming months. It could be that over the next six months inflation is half a percent or below. Even though it might rise later in 2015 it is likely to remain far, far below the ECB’s price stability goal,” Kounis said.