Current developments in inflation in the Eurozone and implications for financial policy

Current developments in inflation in the Eurozone and implications for financial policy

According to a report by amp.dw.com, inflation in the euro zone weakened again in October and reached its lowest level in more than two years. The annual inflation rate fell to 2.9 percent from the previous 4.3 percent. This is the first time since summer 2021 that the inflation rate in the euro area is below the three percent mark.

In Germany, the inflation rate in October was 3.0 percent, slightly above the value for the euro zone. Nevertheless, there are clear differences within the Eurozone, with Croatia (6.7 percent) and Slovakia (7.8 percent) on the one hand and the Netherlands (minus 1.0 percent) and Belgium (minus 1.7 percent) on the other.

Despite the decline, the European Central Bank's (ECB) medium-term inflation target of two percent is still being exceeded. This could make the “last mile” before reaching the inflation target a challenge for the ECB, especially given the economic downturn.

According to a survey, the majority of economists do not expect the ECB to cut interest rates for the first time before next July, even though the deposit rate on the capital market is now 4.0 percent - the highest level since the beginning of the monetary union in 1999.

Given this development, it is likely that the ECB will continue to act cautiously and not make any hasty interest rate cuts. The uncertainty regarding future inflation developments and the economic outlook requires a very careful and flexible monetary policy. The impact of these developments on the financial market could therefore bring increased volatility and possibly a wait-and-see approach to investments in the coming months.