FX.co ★ Both EU economy and inflation slumps

According to Bloomberg, which cites Eurostat statistics, eurozone inflation eased to its lowest level in more than two years amid an unprecedented ramp-up in interest rates.

Reports showed that consumer prices rose by 2.9% in October. A month earlier, the indicator increased by 4.3%. Notably, analysts polled by Bloomberg had expected the inflation rate to be 3.1%. In addition, those who had anticipated stagnation were also surprised. In a separate release, Eurostat said that in the third quarter, GDP fell by 0.1%.

Such data caused mixed reactions. It turned out that a gradual rise in the key interest rate pushed inflation to the 2% target but negatively affected households and companies. On the one hand, interest rate hikes have a positive effect on inflation. On the other hand, such a monetary policy has hit consumers. Bloomberg emphasized that more expensive loans added fuel to the situation. “The euro area is shrinking slightly under the weight of higher interest rates,” Bloomberg wrote. The pressure could seriously damage the economy.

Slowing external demand and the lingering impacts of the energy price shock have also influenced the economy. Nevertheless, the European economy “is not yet falling off a cliff” but it is on the verge of it.

The situation is also aggravated by recent inflation figures, which unveiled lower price pressure. That is why some analysts suppose that the European Central Bank may have such a goal when raising the benchmark rate. In this light, the likelihood of a new key rate hike by the end of the year is almost zero.