| Consensus | Consensus Range | Actual | Previous | |
|---|---|---|---|---|
| HICP - M/M | -0.1% | -0.1% to -0.1% | -0.1% | 0.1% |
| HICP - Y/Y | 1.8% | 1.8% to 1.8% | 1.7% | 2.2% |
| Narrow Core - M/M | 0.1% | 0.1% to 0.1% | 0.1% | 0.3% |
| Narrow Core - Y/Y | 2.7% | 2.7% to 2.7% | 2.7% | 2.8% |
Highlights
Inflation decelerated again in September and by more than originally reported. The HICP dipped a final 0.1 percent on the month, in line with its flash estimate but still reducing the yearly rate from August's final 2.2 percent to a downwardly amended 1.7 percent. This was its lowest reading since April 2021 and means that the rate now stands 0.3 percentage points below its medium-term target, the first negative gap in more than three years.
The core rates were unrevised. The narrowest measure dropped from a yearly 2.8 percent rate to 2.7 percent, equalling its weakest mark since January 2022, while the wider measure that excludes just energy and unprocessed food also dropped 0.1 percentage point to 2.7 percent. Inflation in the key services category was trimmed to 3.9 percent, a couple of ticks less than in August but still stubbornly firm with only a broadly flat underlying trend. Lingering effects from the Paris Olympic Games might have been an issue. Elsewhere, the rate in non-energy industrial goods was confirmed and steady at just 0.4 percent while energy (minus 6.1 percent after minus 3.0 percent) had a significant negative impact and food, alcohol and tobacco (2.4 percent after 2.3 percent) a minimal positive effect.
Regionally, headline inflation fell in France (1.4 percent after 2.2 percent), Germany (1.8 percent after 2.0 percent), Italy (0.7 percent after 1.2 percent) and Spain (1.7 percent after 2.4 percent). Both the French and Italian rates were 0.1 percentage point lower than previously reported and all the four larger member states have national HICP inflation rates below the ECB's target.
The final September update will do nothing to undermine expectations of another 25 basis point cut in the key deposit rate at today's ECB announcement. Sub-target headline and declining core Eurozone inflation should be well received at the ECB despite the relative stickiness of prices in services. Today's reports trim the Eurozone RPI to minus 9 and puts the RPI-P at exactly zero. Real economic activity is moving in line with market expectations despite some downside surprises on inflation.
The core rates were unrevised. The narrowest measure dropped from a yearly 2.8 percent rate to 2.7 percent, equalling its weakest mark since January 2022, while the wider measure that excludes just energy and unprocessed food also dropped 0.1 percentage point to 2.7 percent. Inflation in the key services category was trimmed to 3.9 percent, a couple of ticks less than in August but still stubbornly firm with only a broadly flat underlying trend. Lingering effects from the Paris Olympic Games might have been an issue. Elsewhere, the rate in non-energy industrial goods was confirmed and steady at just 0.4 percent while energy (minus 6.1 percent after minus 3.0 percent) had a significant negative impact and food, alcohol and tobacco (2.4 percent after 2.3 percent) a minimal positive effect.
Regionally, headline inflation fell in France (1.4 percent after 2.2 percent), Germany (1.8 percent after 2.0 percent), Italy (0.7 percent after 1.2 percent) and Spain (1.7 percent after 2.4 percent). Both the French and Italian rates were 0.1 percentage point lower than previously reported and all the four larger member states have national HICP inflation rates below the ECB's target.
The final September update will do nothing to undermine expectations of another 25 basis point cut in the key deposit rate at today's ECB announcement. Sub-target headline and declining core Eurozone inflation should be well received at the ECB despite the relative stickiness of prices in services. Today's reports trim the Eurozone RPI to minus 9 and puts the RPI-P at exactly zero. Real economic activity is moving in line with market expectations despite some downside surprises on inflation.
Market Consensus Before Announcement
Forecasters see HICP down an unrevised 0.1 percent on the month and unrevised at 1.8 percent on year. Core HICP is seen unrevised at 2.7 percent on the year.
Definition
The harmonised index of consumer prices (HICP) is a measure of consumer prices used to calculate inflation on a consistent basis across the European Union. Changes in the index provide an estimate of inflation, as targeted by the European Central Bank (ECB). Eurostat provides statistics for the EU and Eurozone aggregates, individual member states and for the major subsectors. Over the short-term, the central bank focusses on a number of core measures which seek to strip out the most volatile components and so give a much better guide to underlying developments. Amongst these, financial markets normally concentrate upon the narrowest gauge which excludes energy, food, alcohol and tobacco.
Description
The measure of choice in the European Monetary Union (EMU) is the harmonized index of consumer prices which has been constructed to allow cross member state comparisons. An investor who understands how inflation influences the markets will benefit over those investors that do not understand the impact. In the European Monetary Union, where monetary policy decisions rest on the ECB's inflation target, the rate of inflation directly affects all interest rates charged to business and the consumer.
Inflation is an increase in the overall prices of goods and services. The relationship between inflation and interest rates is the key to understanding how indicators such as the CPI influence the markets - and your investments.
Inflation (along with various risks) basically explains how interest rates are set on everything from your mortgage and auto loans to Treasury bills, notes and bonds. As the rate of inflation changes and as expectations on inflation change, the markets adjust interest rates. The effect ripples across stocks, bonds, commodities, and your portfolio, often in a dramatic fashion.
By tracking inflation, whether high or low, rising or falling, investors can anticipate how different types of investments will perform. Over the long run, the bond market will rally (fall) when increases in the HICP are small (large). The equity market rallies with the bond market because low inflation promises low interest rates and is good for profits.
Inflation is an increase in the overall prices of goods and services. The relationship between inflation and interest rates is the key to understanding how indicators such as the CPI influence the markets - and your investments.
Inflation (along with various risks) basically explains how interest rates are set on everything from your mortgage and auto loans to Treasury bills, notes and bonds. As the rate of inflation changes and as expectations on inflation change, the markets adjust interest rates. The effect ripples across stocks, bonds, commodities, and your portfolio, often in a dramatic fashion.
By tracking inflation, whether high or low, rising or falling, investors can anticipate how different types of investments will perform. Over the long run, the bond market will rally (fall) when increases in the HICP are small (large). The equity market rallies with the bond market because low inflation promises low interest rates and is good for profits.
