The ECB’s policy trajectory remains unaffected by November inflation data. Declining core inflation and services prices indicate that disinflationary forces persist. This trend supports expectations of an interest rate cut at the ECB’s December meeting, as economic conditions weaken across the eurozone.
Recent Purchasing Managers’ Index (PMI) data highlights declining private sector activity. Eurozone Composite PMI dropped to 48.1 in November from October’s neutral 50.0, marking the steepest contraction since January. This figure fell short of market expectations for no change.
Both manufacturing and services sectors show troubling signs. Manufacturing remains in a prolonged slump, while services, previously a stabilizing factor, entered contraction for the first time in 10 months. The services PMI slid to 49.2 in November from 51.6 in October.
Kyle Chapman, a forex market analyst at Ballinger Group, noted market sentiment: “The focus is on a 25 basis point cut in December. Economic decline is gradual, and uncertainty about the neutral rate tempers the urgency for larger cuts.”
Germany’s Retail Sales Slump and Market Reactions
Germany, the eurozone’s largest economy, continues to struggle with declining consumer spending. Federal Statistical Office data showed retail sales fell by 1.5% in October, sharply reversing a revised 1.6% increase in September. This decline, the steepest in two years, far exceeded expectations of a 0.3% drop.
The weak retail performance underscores broader economic concerns, adding pressure on policymakers to address Germany’s faltering consumer confidence.
Despite these developments, financial markets reacted little to the inflation and retail sales data. The euro held steady at $1.0560 against the U.S. dollar. Sovereign bond yields remained stable, with Germany’s 10-year Bund yield hovering at 2.12%, its lowest in nearly two months.
Equity markets showed minimal movement. The Euro STOXX 50 index remained flat after a 0.4% rise the previous day. Among blue-chip stocks, Airbus SE gained 1.3%, Schneider Electric SE rose 1%, and LVMH advanced 0.6%. On the downside, Telefonica dropped 1.5%, and Banco Santander fell 1.2%.
Inflation Trends Offer Mixed Signals
Annual eurozone inflation rose to 2.3% in November, up from 2% in October, meeting market expectations. This increase reflects the waning deflationary impact of energy prices.
Monthly consumer prices declined by 0.3% in November, the steepest drop since January 2024. This decline reinforces hopes of continued disinflation, potentially justifying further ECB rate cuts.
Energy prices remained 1.9% lower year-on-year, though the decline moderated compared to October and September. On a monthly basis, energy prices rose by 0.6%.
Core inflation, excluding energy and food prices, ticked up slightly to 2.8% year-on-year, from 2.7% in October. However, monthly core inflation fell by 0.4%, hinting at easing underlying price pressures. Services prices increased by 3.9% year-on-year but dropped 0.9% month-on-month, offering a cautiously optimistic inflation outlook.
