According to research from Nataxis, headline inflation for the Eurozone is set to rebound as main inflation measures converge with core inflation (less price volatility from food and energy prices), rather than remaining low moving forward.
Headline inflation to return to core inflation levels
Investors have noted the rapid fall in headline inflation in the EU, from 5.2% year-on-year in August 2023 to 2.9% year-on-year in October 2023. We need to compare headline inflation with inflation excluding energy and unprocessed food (core inflation). It is usual for energy and food prices to fall back after rising sharply, pushing headline inflation below core inflation.
We have seen in the past that when this base effect on energy and food prices disappears, it is headline inflation that rises to the level of core inflation, rather than core inflation falling to the level of headline inflation.
Eurozone inflation will rise from its low point in the autumn of 2023 and converge towards the level of core inflation. The eurozone's benchmark inflation is therefore inflation excluding energy and unprocessed foods, which was 4.9% in October 2023.