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Inflation reaction : ECB to cut rates in October

KEY POINTS
Euro area headline inflation dropped 0.4pp to 1.8% yoy in September, below the 2% target for the first time since June 2021.
Excluding large energy base effects, core inflation edged down 0.1pp to 2.7% yoy.
The miss is important for the ECB that projected core inflation around 2.9% in September in their latest forecasts round. Seasonally adjusted measure shows further faltering core inflation momentum.
We change our call and now believe the ECB will implement another 25bps rate cut at its October meeting.
 

EMU

    

Headline HICP (in % yoy)

Headline

Core

Germany

France

Italy

Spain

August

September (AXA IM)

2,22,82,02,21,22,4
1,72,71,71,70,61,6

September (Refinitiv Consensus)

2,02,81,92,01,01,9

September (Flash)

1,82,71,81,50,81,7

Source: Eurostat, Bloomberg and AXA IM Research, October 2024

Euro area headline inflation dropped to 1.8% yoy in September (-0.4pt), slightly above our forecast but below consensus (2%). Energy deflation accounts for most of the deceleration (-6% yoy) but core inflation decelerated to 2.7% yoy (-0.1pt). It is in line with our forecast and below consensus (2.8%). But most importantly it is a large miss versus ECB September macroeconomic projections. The ECB had a core inflation averaging 2.9% in Q3, which implied a figure around 2.9% for September (Exhibit 2).

Exhibit 2: A large miss for the ECB

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