• EMU inflation slows down more than estimated in October
  • GDP in a q/q terms beats estimate showing the highest pace of growth since 2011
  • Labor market illustrates that slack is being absorbed boding well for inflationary pressures going forward
  • Euro remains barely changed, the short-term decline still on the cards

The latest data from the Eurostat revealed that inflation across the euro area slowed down this month from 1.5% yoy to 1.4% yoy while the market consensus had pointed to the unchanged value. Notice that weaker readings from Germany and Spain dragged down the inflation rate in the whole European economy while France managed to bump up its pace.

link do file download linkEMU inflation slowed down this month where Germany, Spain and Italy were among  culprits. Source: Macrobond, XTB Research

EMU inflation could have been expected to lose some steam in October following the reading from Germany on Monday which revealed bleak numbers. What’s more, Spanish inflation moved down and Italian one declined as well. France was the sole country among the major economies which was capable of meeting the forecast at 1.2% yoy and beating the prior value at 1.1% yoy. According to the Eurostat EMU CPI slowed down from 1.5% yoy to 1.4% yoy whereas the core gauge saw a yet deeper drop from 1.1% yoy to 0.9% yoy suggesting the recent inflation increase has been chiefly based on monetary stimulus rather than market-based mechanisms. Bear in mind that the Governing Council underlined last week that further monetary support needs to stay in place until so-called self-sustaining inflation emerges. We may sum up today that this has yet to transpire.

link do file download linkThe jobless rate in the euro area dropped to the lowest level since early 2009. Source: Macrobond, XTB Research

While more sluggish inflation growth could justify a short-term pullback in the single currency, the labor market proved to be more encouraging as the jobless rate fell from 9.1% to 8.9% in September, the lowest level since the beginning of 2009. It could prop up inflationary pressures going forward as slack in the labor market is being absorbed which in turn ought to morph into higher wage growth. On top of that one needs to spot that GDP in Q3 amounted to 0.6% q/q while the consensus indicated a decrease to 0.5% q/q. In addition the value for Q2 was revised up from 0.6% q/q to 0.7% q/q. All of that means that domestic demand sticks to its decent pace hence one may anticipate that it could shore up demand for labor as companies are expected to beef up their output in order to meet citizens’ needs. If so, Draghi could achieve what he’s been pursuing for months – persistent inflation without accomodative policy.

link do file download linkThe EURUSD could be en route to 1.1450 where a more notable support is placed. Source: xStation5

The EURUSD could be continuing to move south and the latest data from the US and the EMU economies (livelier GDP growth across the pond and subdued price pressure in Europe) seems to buttress such a projection. On top of this, the speculative positioning in conjunction with the interest rate market is also supportive of the greenback. Thus, a decline towards 1.1450 could appears to be uninterruptedly in the offing in the short-term.