Lagarde: Inflation Decline Has Been Broad-Based, But Due To Pick Back Up

ECB President Lagarde opens the post-meeting press conference with the usual reading of the monetary policy statement, then turns to the survey of the economic landscape:

• The euro area economy contracted slightly in the third quarter owing to a decline in inventories. Tighter financing conditions and subdued foreign demand will weigh on the economy in the near term.
• Construction and manufacturing are the sectors mostly affected by higher interest rates. Service activity will soften in the coming months due to weaker industrial activity, waning effects of reopening the economy, and the broadening impact of the tighter financing conditions.
• The weaker economy is dampening the demand for workers with fewer vacancies being advertised. Even though more people are in work, total hours worked edge down by 0.1% in the third quarter.
• Inflation dropped over the past two months. This decline was broad based. Energy price inflation fell further. Food price inflation came down, but remains high overall.
• In December, inflation is likely to pick up due to base effects for the cost of energy.
• In 2024 we expect inflation to decline more slowly because of further upward base effects and the fading out of past fiscal measures for mitigating the energy price shock.
• Core inflation fell, reflects improving supply conditions, tighter monetary policy and the fading of previous fiscal measures. All measures of underlying inflation declined in October, but domestic price prices remained elevated due to strong wage growth and falling productivity.
• Measures of longer term inflation expectations mostly stand around 2% with some market based measures declining from elevated levels.