The dire results from the survey of around 5,000 companies (the so-called Comprehensive PMI) suggest activity has slowed for the first time since February as the sugar consumption rush from the Paris Olympics subsides, leaving investors and policymakers particularly concerned. It surprised me. . With the US economy slowing and China's economy still suffering from a chronic real estate crisis, the possibility of a hard landing for the eurozone is increasing.
With inflation falling more than expected, even traditional hawks like Latvia's Martiši Kazakhstan are prepared to agree that “the market has priced in that October's decision is very clear.” It was done. Eurostat estimates that inflation in the euro zone will fall to 1.8%, the lowest level in three years, and below the medium-term target of 2%.
This may seem like a quick turnaround for two single data points, especially since ECB President Christine Lagarde has repeatedly stressed that the central bank is considering all data. Additionally, much of September's decline was due to energy prices, which rebounded sharply this month as conflicts flared up again in the Middle East. Services inflation, at 4.0%, has barely slowed over the year, while core inflation, which excludes food and energy, remains clearly above target at 2.7%.
But former rate-setters are seeing a comeback after the Governing Council failed to change its risk assessment to the economic outlook over the summer, even as it became clear that conditions in the eurozone were deteriorating. I saw it as a sign. “Between July and September, the risk assessment didn't change at all, which was very surprising to me,” he said, speaking on condition of anonymity to speak candidly about his former colleague.
Carsten Junius, an economist at J. Safra Sarasin Bank, said the ECB may not only have fallen behind in the fight against the surge in inflation that began in 2021, but also stopped raising rates or started lowering them sooner. I warned him that it might have been better to do something like that.
At least three policymakers have publicly warned that inflation is at risk of falling below target. Even before the damning data prompted the Governing Council's rethink, Mario Centeno told POLITICO that the ECB “needs to minimize the risk of undershooting, because that is the main risk.”
