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Inflation reaction : ECB to cut rates in October

KEY POINTS
Euro area headline inflation dropped 0.4pp to 1.8% yoy in September, below the 2% target for the first time since June 2021.
Excluding large energy base effects, core inflation edged down 0.1pp to 2.7% yoy.
The miss is important for the ECB that projected core inflation around 2.9% in September in their latest forecasts round. Seasonally adjusted measure shows further faltering core inflation momentum.
We change our call and now believe the ECB will implement another 25bps rate cut at its October meeting.
 

EMU

    

Headline HICP (in % yoy)

Headline

Core

Germany

France

Italy

Spain

August

September (AXA IM)

2,22,82,02,21,22,4
1,72,71,71,70,61,6

September (Refinitiv Consensus)

2,02,81,92,01,01,9

September (Flash)

1,82,71,81,50,81,7

Source: Eurostat, Bloomberg and AXA IM Research, October 2024

Euro area headline inflation dropped to 1.8% yoy in September (-0.4pt), slightly above our forecast but below consensus (2%). Energy deflation accounts for most of the deceleration (-6% yoy) but core inflation decelerated to 2.7% yoy (-0.1pt). It is in line with our forecast and below consensus (2.8%). But most importantly it is a large miss versus ECB September macroeconomic projections. The ECB had a core inflation averaging 2.9% in Q3, which implied a figure around 2.9% for September (Exhibit 2).

Exhibit 2: A large miss for the ECB

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    This document is for informational purposes only and does not constitute investment research or financial analysis relating to transactions in financial instruments as per MIF Directive (2014/65/EU), nor does it constitute on the part of AXA Investment Managers or its affiliated companies an offer to buy or sell any investments, products or services, and should not be considered as solicitation or investment, legal or tax advice, a recommendation for an investment strategy or a personalized recommendation to buy or sell securities.

    It has been established on the basis of data, projections, forecasts, anticipations and hypothesis which are subjective. Its analysis and conclusions are the expression of an opinion, based on available data at a specific date.

    All information in this document is established on data made public by official providers of economic and market statistics. AXA Investment Managers disclaims any and all liability relating to a decision based on or for reliance on this document. All exhibits included in this document, unless stated otherwise, are as of the publication date of this document.

    Furthermore, due to the subjective nature of these opinions and analysis, these data, projections, forecasts, anticipations, hypothesis, etc. are not necessary used or followed by AXA IM’s portfolio management teams or its affiliates, who may act based on their own opinions. Any reproduction of this information, in whole or in part is, unless otherwise authorised by AXA IM, prohibited.

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    Disclaimer
    This document is for informational purposes only and does not constitute investment research or financial analysis relating to transactions in financial instruments as per MIF Directive (2014/65/EU), nor does it constitute on the part of AXA Investment Managers or its affiliated companies an offer to buy or sell any investments, products or services, and should not be considered as solicitation or investment, legal or tax advice, a recommendation for an investment strategy or a personalized recommendation to buy or sell securities. It has been established on the basis of data, projections, forecasts, anticipations and hypothesis which are subjective. Its analysis and conclusions are the expression of an opinion, based on available data at a specific date. All information in this document is established on data made public by official providers of economic and market statistics. AXA Investment Managers disclaims any and all liability relating to a decision based on or for reliance on this document. All exhibits included in this document, unless stated otherwise, are as of the publication date of this document. Furthermore, due to the subjective nature of these opinions and analysis, these data, projections, forecasts, anticipations, hypothesis, etc. are not necessary used or followed by AXA IM’s portfolio management teams or its affiliates, who may act based on their own opinions. Any reproduction of this information, in whole or in part is, unless otherwise authorised by AXA IM, prohibited.
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