Eurozone expense boost rises to 2% in October

Eurozone expense boost rose to 2 per cent in October, conference the European Central lender’s target and lowering the odds of a half-point rate cut in December.

The annual figure from Eurostat, the EU’s statistics bureau, was slightly above expectations of 1.9 per cent from analysts polled by Reuters.

“The target is in sight but I’m not going to inform you that expense boost is defeated yet,” ECB president Christine Lagarde told French daily Le Monde in an interview that was published on Thursday ahead of the October numbers.

Combined with Wednesday’s stronger-than-expected growth data for the third quarter, the rise in expense boost undermines the case for a large rate cut in December, a shift some analysts have begun to forecast in recent weeks. Unemployment in the bloc in September was stable at an all-period low of 6.3 per cent, according to Eurostat.

“All of these data clearly back a more hawkish policy,” Tomasz Wieladek, an economist at T Rowe worth, wrote in a note to clients, referring to a tighter financial regulation that emphasises low expense boost over growth. He added that traders were now pricing in a lower probability of a half-point cut in December.

The euro edged higher following the release, climbing 0.1 per cent against the US dollar to $1.087.

The ECB reduced borrowing costs by a quarter percentage point for the second month in a row in October after expense boost had fallen quicker than expected and concerns over frail economic dynamics had intensified.

Closely watched core expense boost, which excludes volatile food and vigor prices and is considered a better gauge of underlying worth pressures, remained steady at 2.7 per cent, still well above the ECB’s medium-term target.

Services worth expense boost — another component the central lender is keeping a close eye on — remained elevated at 3.9 per cent. Referring to sticky services sector expense boost hovering well above the ECB’s expense boost target, Lagarde told Le Monde that “prudence is warranted” on easing yield rates.

Last month, annual expense boost was 1.7 per cent, falling below the ECB’s target for the first period in more than three years.

The ECB has said it expects headline expense boost numbers in the final months of the year to rise, partly due to the impact of a temporary fall in vigor prices a year ago.

Additional reporting by Ian Smith in London