Euro area inflation back to 2%, with sticky core prices

Euro area inflation increased in October to 2.0% Y/Y from 1.7% according to Eurostat ’s flash estimate , slightly higher than consensus expectations (1.9%) Core inflation remained stable at 2.7% Y/Y, slightly higher than expected ( 2.6% ) and showing new signs of stickiness . Services inflation was unchanged at 3.9% Y/Y, while NEIG (goods) prices slightly accelerated to 0.5% Y/Y from 0.4%. Energy base effect s contributed to the increase in headline inflation , with energy prices down by -4.6% Y/Y in October after -6.1%. Food, alcohol and tobacco inflation was up to 2.9% Y/Y from 2.4%. ►  Germany : German October inflation surprised on the upside, reaching +2.4% Y / Y for the HICP (prior: +1.8%; consensus: +2.1%). Core inflation seems to be going up again , with services inflation increasing to +4.0% Y / Y from +3.8% in September. ► France : French HICP came in slightly higher in October at 1.5% Y/Y after 1.4% in Sept, in line with consensus expectations. Services prices (CPI) continue to decline, to 2.2% Y/Y in Oct. from 2.4%, while energy prices decreased by -2.0% Y/Y after -3.3% in Sept, contributing to the slight increase in the headline rate . The prices of manufactured products, food and tobacco moved at rates like those of the previous month. We expect French inflation to pick up somewhat in November and December, mainly due to base effects in energy prices, but still to remain below 2%. ► Italy: Inflation remained very low in October at 1%, up from 0.7% in September. Food prices account for most of the acceleration, along with non-regulated energy products. According to Istat , core inflation (excluding energy, food, alcohol, and tobacco) has remained stable (at 1.9% in September if we refer to harmonized figures). The annual rate of change of service prices is expected to have remained unchanged in October, slightly above 3%. ►   Spain : inflation (HICP) increased in October to 1.8% Y/Y from 1.7%. T he Spanish statistical office (INE) suggested that this acceleration resulted from a slight increase in fuel prices, and to a lesser extent, in electricity and gas prices C ore inflation (excluding unprocessed food and energy) is expected to have increased by 0.1 pp to 2.5%. The harmonized core index should have stabilized at 2.7%, according to our own estimate. We believe that f rom now on inflation will increase up to 2.3% in December and should navigate in a range between 1.3% and 2% in 2025, with a low point from April to June . Higher than expected Euro area inflation with sticky core prices alongside with robust Q3 GDP growth reinforce the ECB “cautious” camp and reduce the likelihood of a 50 bp rate cut by the ECB in Decembe r . We stick our call of a 25bp rate cut at the December meeting.