Eurozone HICP Preview: Forecasts from seven major banks, another step down in inflation

We expect a further slight decline in inflation in October, mainly due to a continued downward trend in food prices as well as core inflation. The recent sharp rise in oil prices poses a slight upside risk to the dynamics of energy inflation in the short term. Downward pressure on food inflation should intensify further in the months ahead. Core inflation should also gradually lose momentum in the short term. We expect inflation to fall to around 3.5% YoY by the end of the year. For 2024, we forecast average inflation of 3%.

In the Euro area, the inflation rate is likely to have fallen markedly from 4.3% in September to 3.0% in October, especially as the sharp rise in energy prices in October is no longer included in the YoY comparison. But even the inflation rate excluding energy and food and beverages is likely to have eased slightly in October, from 4.5% to 4.3%.

We expect a large decline in October headline inflation to 3.1% from 4.4% in September on the back of a large negative contribution from energy prices but also a continuation of the fading underlying price momentum we have seen in Q3.

We expect the headline measure for the Eurozone to further decline to 3.1% from 4.3% in September, and see the core gauge slowing to 4.1% (4.5%).

Lower energy inflation should see the HICP decrease by 1.3pp to 3% YoY in October, with core inflation down 0.3pp to 4.2% YoY. 

Large base effects should cause a major step down in Euro area headline inflation in October to 3.1% YoY, the lowest since August 2021. Core CPI should also ease to 4.2% YoY, on a 0.3% NSA MoM gain (or 0.2% SA). The 3M/3M SAAR core rate currently stands at just above 3%, nearly half the pace of six months ago and the case for a meaningful slowdown in core inflation over coming months is becoming stronger. 

At its October meeting, the ECB held its Deposit Rate steady at 4.00% and again suggested that if interest rates remain at current levels for sufficiently long, that should eventually see inflation return toward target. We believe that this week's output and price data will reinforce the view that an extended policy rate pause is appropriate. The consensus forecast is for a further moderation in price pressures, with October headline and core inflation expected to slow to 3.1% YoY and 4.2% YoY, respectively. More generally, inflation trends are forecast to continue slowing into next year. The news on economic activity should also be subdued. Overall, with growth soft, inflation slowing and sentiment weak, we do not expect the ECB to hike rates further during the current cycle.