Eurozone inflation to take centre stage as growth worries resurface

The latest inflation figures from the eurozone will be the main focus for investors this week as markets attempt to gauge the likely pace of interest rate cuts over the coming months.

Economists expect the headline rate will climb to 2.3 per cent in November, up from 2.0 per cent in October.

“The upward lift to inflation this month is set to be driven by unfavourable base effects from services inflation and from goods prices where we suspect the rise in freight costs this year will provide an upward influence on price pressure,” Ryan Djajasaputra, an economist at Investec said.

The anticipated increase will be the second consecutive rise in inflation. In September, inflation stood at its lowest level since April 2021.

With growth still sluggish, most economists think that the European Central Bank (ECB) will continue cutting interest rates in the months to come.

A closely watched business survey, published last week, suggested that the eurozone fell into contraction for the second time in three months in November.

“2024 looks set to end on a very weak note,” Paolo Grignani, senior economist at Oxford Economics said.

“Major domestic and international political developments in recent weeks are likely to have played a role, but the bleak state of the current economic conjuncture shouldn’t be downplayed,” he added.

Following the survey, investors upped bets that the ECB would cut rates by 50 basis points in the December meeting.

Djajasaputra also suggested that inflationary pressures would remain under control. “Despite the anticipated rise in November inflation, we do not believe that the big picture of a disinflationary trend has changed,” he said.

The ECB cut interest rates for the third time this year in October, meaning the main interest rate stands at 3.25 per cent.

Aside from the european inflation data, there are a smattering of smaller UK data releases, including shop price inflation from the British Retail Consortium and the Bank of England’s money and credit statistics.

In the US, minutes from the Federal Reserve’s latest meeting will be published on Tuesday while the second estimate for US GDP will be released on Wednesday.