Euro Area Inflation Dips, GDP Shows Contrasting Moves in October

Highlights

• Euro area inflation drops to 2.9% in October.
• Energy prices showcase significant -11.1% rate.
• Euro area GDP contracts by 0.1% in Q3 2023.

Euro Area CPI Slows in October 2023

In today’s flash estimate by Eurostat, the Euro area annual inflation rate for October 2023 is projected to be 2.9%, marking a decline from September’s 4.3%. This slowdown in inflation comes as multiple components within the CPI exhibit differing trends.

Breaking Down the Components

Food, alcohol, and tobacco lead the main components of Euro area inflation, albeit at a slightly reduced rate. The estimate for October stands at 7.5%, down from 8.8% in September. Services, another significant segment, is also expected to see a marginal dip at 4.6% in October from 4.7% the previous month. Non-energy industrial goods show a similar trend, projected at 3.5% for October compared to 4.1% in September.

Energy Prices Pulling Back

Interestingly, energy prices demonstrate the most significant shift. Energy is expected to have an annual rate of -11.1% in October, a drastic change from -4.6% in September. This sharp decline reflects the broader challenges facing energy markets and the subsequent impact on inflation figures.

Euro Area GDP Shows Mixed Signals

The GDP dynamics for the third quarter of 2023 present a mixed picture for the Euro area and the EU. Eurostat’s preliminary flash estimate provides insights into the economic performance of these regions compared to previous quarters.

GDP Movement Across Regions

In the third quarter of 2023, the Euro area saw a seasonally adjusted GDP contraction by 0.1%. In contrast, the EU experienced a growth of 0.1%. This is a modest increase in the EU compared to the third quarter of 2022, where there was a 0.1% rise in both areas.

Comparison to Previous Quarters

The second quarter of 2023 had painted a slightly different picture. The GDP had grown by 0.2% in the Euro area during this period, while the EU’s GDP remained stable, showcasing no significant changes.

Outlook

The overall trend indicates a cooling off of economic activity in the Euro area while the EU maintains a steady, albeit slow, growth trajectory. Given the data at hand, the short-term forecast suggests a bearish outlook for the Euro area, while the EU might continue to tread water with slight positive inclines.