Euro Inflation Seen Matching Consensus Forecast
Standard Chartered’s proprietary inflation model suggests that core inflation in the euro area for October will align with consensus expectations, showing no significant deviation. The model, which uses surprise metrics from Spain’s core inflation data to anticipate broader eurozone outcomes, forecasts that core HICP inflation will print at 2.3% year-on-year, matching market consensus. According to Akrit Agarwal, Fixed Income Strategist at Standard Chartered, the upside surprise from Spain’s inflation is offset by downward pressure from energy and producer price trends.
“Our inflation surprise model predicts that October euro-area core inflation (to be released Friday, 31 Oct) will print at consensus, which is currently at 2.3% y/y,” Agarwal explains. “The model essentially uses a surprise from Spain’s core inflation to predict another surprise, bridging the gap between country-level releases and the aggregate euro-area-wide inflation data that follows later.”
The key contributors to this month’s forecast include:
Standard Chartered notes that consensus forecasts may not have fully accounted for the pass-through effects of these factors on euro-area core inflation.
In September, the model incorrectly predicted that euro-area core inflation would come in 0.1 percentage points below consensus, at 2.2% y/y. This miss occurred despite a notable downside surprise in Spain’s core inflation (0.2ppt below expectations). Since then, market pricing for European Central Bank (ECB) rate cuts has drifted lower.
Despite this, Standard Chartered maintains its view that a final rate cut in December remains the base case. The bank believes inflation is on a decelerating trajectory, and this trend is expected to gain momentum in the coming months.
Currently, the market sees a December rate cut as an outside possibility, with only 2 basis points of easing priced in. This reflects skepticism among traders, but Standard Chartered argues that weakening inflation and subdued demand could still prompt the ECB to act.
Standard Chartered’s inflation model points to a stable core inflation print for October, in line with consensus at 2.3%. While Spain’s data showed a modest upside surprise, broader disinflationary forces—particularly in energy and producer prices—are expected to neutralize its impact.
The bank continues to forecast a December rate cut by the ECB, even as market participants remain cautious. With inflation expected to slow further, Standard Chartered sees policy easing as a logical next step, despite limited market conviction.