Inflation in the euro zone has not been defeated

Headline inflation in the euro zone fell from 5.5% year-on-year in June 2023 to 2.9% year-on-year in October 2023. If we only looked at headline inflation, we might get the impression that there is strong disinflation in the euro zone. However, this fall in headline inflation is mainly due to the trend in energy prices (-6% year-on-year in June 2023, -12% year-on-year in October 2023) and food prices (+13% year-on-year in June 2023 and +9% year-on-year in October 2023). Excluding energy and unprocessed food, inflation in the euro zone fell only from 6.8% year-on-year in June 2023 to 5.0% year-on-year in October 2023. The profile of energy prices shows that energy's negative contribution to inflation will disappear in February or March 2024. In addition, many inflationary mechanisms persist in the euro zone: Rapid wage growth; Falling productivity; Excess demand for goods; Tight labour market. We should not look at headline inflation today to assess the trend in inflation. If we look at inflation excluding energy and unprocessed food, or the outlook for headline inflation in early 2024, we see that inflation has by no means been defeated in the euro zone.