Eurozone inflation rises to 4% as energy prices drive headline increase

Matthew Ryan, CFA Ebury

The October Euro Area inflation data offered little in the way of surprises.

Headline inflation rose to 4.0% from 3.8%, in line with expectations, while core inflation was steady at 2.5%, also matching consensus. With the spike in energy prices continuing to account for the bulk of the increase in the former, the fact that the underlying rate did not tick upwards will be a source of encouragement for ECB officials.

The Governing Council remains on course to raise rates again in December, though without clear evidence of second-order inflation effects we think that the bank may be reticent to tighten aggressively, or at all, in 2027.

Focus will soon turn to the identity of the next ECB president after Lagarde said last week that she would be stepping down in February. Messrs Hernández de Cos (43%) and Knot (41%) are the current front-runners according to Polymarket.

Knot confirmed his hawkish bias this week by saying that second-round effects will probably pick up, so his appointment would likely be marginally bullish for the euro, while the selection of Hernández de Cos could be bearish at the margins, given his perceived dovish tilt.

Author

Matthew Ryan, CFA

Ebury

Matthew is Global Head of Market Strategy at FX specialist Ebury, where he has been part of the strategy team since 2014. He provides fundamental FX analysis for a wide range of G10 and emerging market currencies.

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