EU inflation runs hot, but is contained to energy so far amid ECB’s hawkish

Headline inflation in the euro area has more than doubled since January amid the Hormuz oil shock. But so far, the pain has mostly been contained to energy; wage increases have been modest and core inflation, which excludes volatile food and energy prices, has barely moved.

Our proprietary nowcasts, which monitor price increases in near real time, show inflationary pressures building in Germany – but in France, they are easing. For the wider eurozone, our nowcast is showing inflation holding steady at 3.8%. Core inflation stood at 2.5% in September (and has not changed in our October nowcast) – only modestly above the ECB’s 2% target.

The European Central Bank is part of this equation; it has been one of the most hawkish central banks, raising rates twice. The central bank’s wage tracker is showing take-home pay is rising across the eurozone – but at a slower rate than 2023-24. Unions could start pushing for greater pay increases to compensate for lost purchasing power, however.