Easing Eurozone inflation indicates ECB hikes are done

(Alliance News) - New data from the eurozone on Tuesday showed that inflation is easing more than markets had previously expected, ahead of the European Central Bank's meeting next week.

From the previous month, Eurostat reported that producer prices rose 0.2% in the eurozone in September, coming in line with FXStreet-cited market consensus. The monthly rise slowed from 0.5% in September.

From the previous year, prices fell 9.4% in October, also in line with market forecasts, according to FXStreet. In September, prices fell 12.4%. The annual fall was led by a 25% drop in energy prices.

Meanwhile, the latest HBOC eurozone composite purchasing managers' index reading rose to 47.6 points in November, a four-month-high, from 46.5 in October. Clawing closer to the 50.0 no change mark, the latest reading suggests the pace of decline in the private sector eased.

"The downturn in the euro area economy extended into a sixth month midway through the fourth quarter, with declines in new business and backlogs of work being sustained. The labour market finally succumbed to the downward drag from weakening demand conditions as employment fell for the first time since January 2021. Business confidence, while edging up fractionally, remained subdued by historical standards, and inflationary pressures intensified," survey publisher S&P Global said.

The composite reading is calculated using a weighted average of the services and manufacturing data.

The services PMI rose to 48.7 points last month, a two-month high, from 47.8 in October. Numbers on Friday showed the manufacturing PMI rose to 44.2 points in November from 43.1 points in October.

Capital Economics Andrew Kenningham commented: "Perhaps more interestingly ahead of next week's ECB meeting, the PMIs suggest that price pressures have eased but not completely evaporated. The output price component of the composite PMI rose in November (to 52.5) and was just above its long-run average, while the input prices PMI was close to its long-run average (at 57.1). Hiring plans have come off the boil, as the employment component of the composite PMI dipped below the 50 no-change mark, though hiring is still positive in the services sector."

He added: "In all, these surveys along with the recent positive inflation surprises, suggest that inflationary pressures are easing faster than many, including ourselves, had anticipated. The ECB is set to leave interest rates unchanged at next week's meeting, but policymakers will probably acknowledge that they are at least thinking about when they can begin to loosen policy again."

The next ECB interest rate decision is announced on December 14.

At its last meeting in October, the ECB left its key interest rates unchanged. In its first pause since beginning its hiking cycle last July, the Frankfurt-based official lender left the interest rate on the main refinancing operations, the marginal lending facility, and the deposit facility at 4.50%, 4.75% and 4.00%, respectively.

The ECB has speedily enacted 450 basis points of interest hikes in total over the past year or so. Its first in the current cycle was in July of last year, prior to that, rates had been unchanged since 2019.

By Sophie Rose, Alliance News senior reporter

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