Positive news on inflation, with the trend pointing to a decline. However, oil, natural gas and house prices remain a concern and may temper inflation reaching the ECB target. Overall, we expect the ECB to maintain interest rates at current levels.
The Eurozone Producer Price Index (PPI) year-over-year recorded a drop of 12.4 per cent, while month-over-month it rose 0.5 per cent. These figures align with efforts to achieve the 2 per cent inflation target. Besides, we anticipate that the ongoing downward trend in oil and natural gas prices won't counteract the prevailing disinflationary pressures.
In Germany, the consumer price index (CPI) reflected an inflation rate of +3.8 per cent in October, marking a continuous slowdown and reaching the lowest level since August 2021. Although inflation persists at high levels, consumers are still grappling with elevated prices in food and energy, a situation that might endure due to global tensions. Nonetheless, when compared to the previous year, food and energy prices are lower. Notably, the primary contributor to high inflation in Germany remains food prices, which surged by 6.1 per cent in October.
Our expectation for inflation within the EU is that it will continue to align with the trajectory towards the 2 per cent target. Natural gas and pre-oil prices are not going to raise inflation, so the European Central Bank (ECB) could choose to maintain interest rates at their current level due to the dual concerns of declining inflation and a weakened economy, both concerns of the ECB. As such, we believe that we need to monitor closely these factors in the coming months.