Euro area inflation advanced to a historic high in October, while growth slowed, posing a tough time for the European Central Bank that is trying to balance the risk of recession and the persistently high inflationary pressures.
Inflation accelerated to a record 10.7 percent in October from 9.9 percent in the previous month, flash data from Eurostat showed Monday. The rate was forecast to rise to 10.2 percent.
Another report from the statistical office showed that gross domestic product grew 0.2 percent sequentially in the third quarter, slower than the 0.8 percent expansion seen in the second quarter. Economists had forecast the quarterly rate to improve to 1.0 percent.
On a yearly basis, economic growth more than halved to 2.1 percent, as expected, from 4.3 percent a quarter ago. The next estimates for the third quarter will be released on November 15.
October’s record inflation was largely driven by the 41.9 percent surge in energy prices. Food, alcohol and tobacco prices also increased at a faster pace of 13.1 percent.
Core inflation which excludes energy, food, alcohol and tobacco, advanced to 5.0 percent from 4.8 percent in the prior month. The rate was forecast to remain unchanged at 4.8 percent.
Month-on-month, the harmonized index of consumer prices gained 1.5 percent in October.
Last week, the ECB had raised its key interest rates by 75 basis points and signaled that policymakers look forward to hike rates more in the months ahead.
ING economist Bert Colijn said with interest rates up and the economic outlook uncertain, investment expectations are weakening too. Therefore the economy is set to contract over the coming quarters.
The increase in euro-zone GDP in the third quarter does not alter the view that the euro-zone is on the cusp of a recession, Capital Economics economist Andrew Kenningham said.
But with inflation having jumped to well over 10 percent, the ECB will prioritise price stability and press on with rate hikes regardless, the economist noted.
With economic conditions weakening and a recession in the making for the winter, ING economist said the ECB is going make its next hike somewhat smaller at 50 basis points.
Eurostat data today showed that the EU27 economy grew only 0.2 percent in the third quarter, weaker than the second quarter’s 0.7 percent expansion
Among big-four economies, the German economy logged an unexpected quarterly growth of 0.3 percent, faster than the 0.1 percent rise posted in the second quarter.
Meanwhile, France and Spain posted slower economic growth in the third quarter on weak foreign demand. The French GDP grew 0.2 percent from the second quarter, when the economy expanded 0.5 percent.
Spain’s quarterly economic growth also eased to 0.2 percent, down sharply from 1.5 percent in the second quarter. Likewise, Italy’s growth weakened to 0.5 percent from 1.1 percent in the June quarter.
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