MNI BRIEF: EZ Inflation Data Suggests Downside Surpise For ECB

MNI (LONDON) - Early inflation data for September from both France and Spain came in below market estimates and similiar readings from other major euro area countries could see September inflation printing well below the ECB's 2% target.

In France, HICP fell to 1.5% y/y in September, down from 2.2% in August. Even services inflation slowed sharply according to preliminary data from INSEE, dipping to 2.5% from 3.0% in August.

Spain's headline harmonised inflation fell to 1.7% from 2.4% in August, while core inflation fell to 2.4% from 2.7% last month, despite market expectations of an uptick to 2.8%. The ECB is expecting inflation for fall to around 2% in September, before edging higher into year-end as base effects kick in, but the latest data could push the overall EZ y/y number below 2%. President Lagarde warned at the September policy meeting that the Governing Council would be likely to look through the data, but a sharp downside miss could push the doves to kick harder for a September rate cut, with hawks finding it more difficult to find cover. (see MNI INTERVIEW: ECB Likely To Hold In October - Gonzalez-Paramo)