FRANKFURT (Reuters) -Euro zone inflation slowed a touch in October and continued to hover near the European Central Bank’s 2% target, confirming the bank’s message that the economy remains on the relatively benign path it projected earlier.
Inflation in the 20 nations sharing the euro currency slowed to 2.1% from 2.2% in September, in line with economists’ forecasts in a Reuters poll, as quicker services price growth was offset by lower energy costs, figures from Eurostat showed on Friday.
A closely-watched figure on underlying inflation, which excludes volatile food and fuel prices, meanwhile held steady at 2.4%, defying expectations for a slowdown, as services inflation picked up to 3.4% from 3.2%, offsetting a drop in industrial goods inflation.
The ECB held interest rates steady on Thursday, arguing that inflation was on target and some of the worst risks related to economic growth had declined, keeping the bloc on a path for acceptable, if unspectacular, growth.
The ECB sees inflation dipping below 2% next year before a rise back to target in 2027, an outlook that was supported on Friday by a separate ECB survey, which is often a key input into policy deliberations.
This relatively healthy inflation outlook is a key reason why economists think the ECB is done cutting interest rates and financial markets only see a 40% chance of one last cut by the middle of next year.
The bank has already lowered rates by a combined 2 percentage points in the year to June and given long lags in policy transmission, this is still filtering through to the real economy.
Still, some policymakers argue that risks are skewed towards inflation going too low. They say that prices will dip below 2% early next year on statistical base effects and this could change firms’ price expectations, making low inflation self-fulfilling.
But others say that the economy has performed better than feared and a raft of surveys, including the ECB’s own poll of companies, is pointing to improved activity.
This improvement should alleviate some of the fears about the economy and limit downside risks to inflation, they argue.
(Reporting by Balazs KoranyiEditing by Mark Potter)
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