In reality, inflation has barely fallen in the euro zone

If we simply look at headline inflation in the euro zone, we conclude that there has been sharp disinflation, with headline inflation falling from 8.6% in January 2023 to 2.9% in October 2023. However, this fall in headline inflation is essentially due to: The fall in energy prices (from +18.9% year-on-year in January 2023 to -1 1 .2% year-on-year in October 2023); The slowdown in food prices (from +16.6% year-on-year in January 2023 to +7.4% year-on-year in October 2023). Inflation excluding energy and unprocessed food fell much less (from 7.1% in January 2023 to 5.0% in October 2023); nominal wages accelerated (from 4% year-on-year in the second quarter of 2022 to 5.5% year-on-year in the second quarter of 2023), as did unit labour costs (from 3% year-on-year in the second quarter of 2022 to 6.5% year-on-year in the third quarter of 2023). It is important to realise that in the euro zone, short-term interest rate expectations and long-term interest rates have reacted to falling headline inflation rather than to continued high core and wage inflation.