Eurozone inflation eased to 2.1% in October, nearing the ECB’s target. Lagarde praised progress but warned of global and wage-related risks.
Price growth in the eurozone continued to ease in October, reinforcing the European Central Bank’s view that inflation is steadily moving back towards target, though stubborn services costs and global uncertainties continue to keep policymakers on alert.
According to a flash estimate from Eurostat, annual inflation in the euro area cooled to 2.1% in October, down from 2.2% in September, and now just a hair above the ECB’s 2% medium-term target.
The figure matched expectations and adds to a string of data suggesting the post-pandemic cost-of-living crisis is being brought under control.
On a monthly basis, prices rose 0.2%, slightly up from September’s 0.1% increase.
The core inflation rate, which strips out volatile items like food and energy, held steady at 2.4% – a notch above forecasts for a slight drop to 2.3%. That suggests that while headline inflation is easing, underlying price pressures – particularly in services – remain sticky.
Indeed, services inflation rose to 3.4% in October, up from 3.2% in the previous month, making it the strongest contributor to overall inflation.
In contrast, food, alcohol and tobacco prices softened to 2.5%, and non-energy industrial goods slowed to 0.6%.
Energy prices remained negative, falling 1.0%, a deeper contraction than in September.
Among eurozone countries for which harmonised inflation data was available, Estonia reported the highest annual inflation rate at 4.5%, followed by Latvia (4.2%), Austria, and Croatia (both 4.0%). At the other end of the scale, Cyprus registered a low 0.3%, while France posted a 0.9% increase.
On a monthly basis, the Netherlands saw the sharpest rise, with prices up 0.6%, followed by Spain and Austria, both at 0.5%.
Meanwhile, five countries recorded falling prices on a month-over-month basis. Malta saw the steepest monthly decline at 1%, followed by Portugal down 0.3%, Italy by 0.2%, and both Greece and Luxembourg with drops of 0.1% each.
ECB holds steady but keeps its guard up
The ECB left interest rates unchanged at its October meeting, marking the third consecutive pause in the tightening cycle. The deposit facility rate remains at 2.00%, as policymakers assess incoming data to confirm that inflation is sustainably converging to target.
Speaking after the meeting in Florence, ECB President Christine Lagarde welcomed the recent progress, but stressed that vigilance remains key.
"Inflation remains close to our two per cent medium-term target and our assessment of the inflation outlook is broadly unchanged," she said.
Lagarde reaffirmed that the ECB is “in a good place”, though not yet ready to declare victory. She also acknowledged that views differ within the Governing Council, noting that debates between so-called hawks and doves are shaped by differing national perspectives and economic conditions.
Lagarde flagged potential supply chain bottlenecks as an upside risk, particularly around rare earth materials and strategic sectors like energy and automotive. While these risks have not yet materialised, the ECB remains in wait-and-see mode.
She also pointed to developments in the labour market, especially wage growth, as a key component of services inflation. Though not currently flagged as a risk, these factors will be crucial in shaping the medium-term inflation path.
“We are in this sort of wait-and-watch mode,” she added, suggesting the ECB will stay data-dependent as it navigates the final stretch of its inflation battle.
Euro holds steady, equities ease
The euro traded flat around 1.1570 against the dollar on Friday morning, while German Bund yields nudged higher to 2.65%, hitting a two-week high.
Equities across the region posted small losses. The Euro STOXX 50 fell 0.4%, and the broader Euro STOXX 600 slipped 0.5%.
At 12:10 CET, the DAX in Germany was down 0.4%, while France’s CAC 40 was lower by 0.2%. Italy’s FTSE MIB, however, managed a slight gain of 0.5%.