Euro Pulse

Inflation in the “Almost There” Zone

Eurozone inflation crept up in September to 2.2% year-on-year, climbing above the European Central Bank’s (ECB) 2% target.

The ECB targets price stability over the medium term, so the bank is more interested in the trend rather than a single data point. For the three previous months, consumer prices stood exactly at two percent.

More concerning for the region is the slowdown of trade. Both imports and exports declined in August. Trade with the US, in particular, took a nosedive.

Peek Behind the Inflation Curtain

Although the headline inflation was only at 2.2%, food prices are persistently increasing. Unprocessed food — the good stuff — was 4.7% more expensive last month than a year ago. So, even though the headline number looks low, consumers are still likely feeling squeezed at the till.

The energy price slump that helped to bring down consumer prices overall earlier this year is also losing steam, making inflation stickier than before.

Core inflation rose slightly to 2.4%. It excludes the prices of the most volatile items: energy, food, alcohol, and tobacco.

Trade Cools on Both Ends

Europe’s trade surplus shrank to €1.0 billion in August — down from €3 billion a year ago. Both exports (-4.7%) and imports (-3.8%) fell, showing that global trade is slowing, not just Europe’s.

And the biggest blow? The surplus with the US, a politically charged metric, plunged to €5.8 billion from €14.2 billion, driven by a 22% drop in exports. Trade tensions and tariffs are clearly biting.

The EU and the US agreed on a trade deal in July, settling on a 15% tariff ceiling on most EU goods. Some sector-specific negotiations are ongoing.

ECB’s Balancing Act

The ECB is unlikely to lower interest rates anytime soon, especially if inflation stays above the 2% target for longer.

An ECB survey of monetary analysts expects no further rate cuts this year.

Why this matters: Central bank rate decisions impact borrowing costs, bond yields, the euro’s strength, and even stock prices. A surprise decision can instantly shift capital flows.

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