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Inflation Forecasts Set To Be Revised Down In Dec (1/2)


November's Eurozone inflation data (MNI's Insight here) poses further downside risks to the ECB’s near-term inflation forecasts which look likely to be revised downward at the Dec 14 meeting.

  • In the September macroeconomic projections, headline inflation was forecast to average 3.3% Y/Y in Q4 2023, while core was seen at 4.1%Y/Y. With HICP averaging 2.65% headline / 3.9% core through the first 2 months of the quarter, it would take a December headline reading of 4.6% Y/Y / core 4.4% (up 2.2pp / 0.8pp respectively from November's flash readings) to reach the ECB's September estimates for the Q4 average.
  • While there will almost certainly be an uptick in Y/Y inflation in the next couple of months - largely on energy subsidy-related base effects - the Q4 average headline figure looks likely to come in below 3.0%, with core below 4.0% - i.e. a major undershoot.
  • In September, the ECB had projected a small rise in headline to 3.4% in Q1 2024 (up 0.1pp from Q4 2023), with core decelerating sharply to 3.4% (from 4.1%). By year-end 2024, core had been seen steadily declining to 2.5%, with headline 2.9%. Of course, the latter would now actually represent a significant jump from November's reading.
  • Given also that energy prices have fallen slightly and the EUR has been steady versus September's technical assumptions (as of the presumed cutoff date mid-last week), there is clearly scope for downward revisions.

Actual Quarterly Average and Monthly Headline HICP % Y/Y; ECB Sept Forecasts From Q3 2023Source: ECB, MNI

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