Underlying Inflation Metrics Show Modest Progress, PCCI Sticky

The ECB's measures of underlying inflation have been updated for the final September HICP data. While continued disinflation can be seen in some measures, those more focused on by the ECB (e.g. PCCI) show recent stickiness above the 2% target after significant progress in the preceding year.

• The overall PCCI (Persistent and Common Component of Inflation) index was 2.65% Y/Y (the same rate as July and August) - the rate peaked at 6.57% in June 2022.• ECB staff regard PCCI as a better (or at least as good) measure than any other underlying inflation indicator in terms of providing a medium-term forecast of the future headline HICP rate. As such, the stalling of the rate 0.6pp above the ECB's target may be a cause for concern.
• The PCCI rate excluding food and energy was more positive, printing at 2.11% Y/Y (vs 2.23% prior), the 8th consecutive month of disinflation.• Elsewhere, "Supercore" (another model-based approach) was 5.2% Y/Y (vs 5.5% prior) while the 10/30% trimmed mean and weighted median measures were all 4.9% Y/Y (vs 5.2% prior) - the first time any of the three have been below the 5.0% handle since May 2022.
• The ECB are firmly expected to hold rates at the upcoming October meeting, with the current terminal rate implied by the OIS market 4.031% in Dec 2023. Continued stickiness of key underlying measures may caution ECB members from signalling any loosening of policy in the coming months.