Eurozone inflation rises to 2% in October

Unlock Editor's Digest for free

Roula Khalaf, editor of the FT, picks her favorite stories in this weekly newsletter.

Inflation in the euro zone rose to 2 percent in October, meeting the European Central Bank's target and reducing the likelihood of a half-percentage point rate cut in December.

The annual figure from Eurostat, the EU's statistics office, was slightly above expectations of 1.9 percent of analysts polled by Reuters.

“The goal is in sight, but I won't tell you that inflation has already been defeated,” ECB President Christine Lagarde told French daily Le Monde in an interview published on Thursday ahead of the October figures.

Combined with stronger-than-expected third-quarter growth data on Wednesday, the rise in inflation undermines the case for a sharp rate cut in December, a move some analysts have begun to predict in recent weeks. According to Eurostat, unemployment in the Union was stable at an all-time low of 6.3 percent in September.

“All of this data clearly argues for tighter policy,” T Rowe Price economist Tomasz Wieladek wrote in a note to clients, referring to tighter monetary policy that prioritizes low inflation over growth. He added that traders are now pricing in a lower chance of a half-point cut in December.

The euro rose slightly after the release, climbing 0.1 percent against the U.S. dollar to $1.087.

The ECB cut borrowing costs by a quarter of a percentage point in October for the second month in a row after inflation fell faster than expected and concerns grew about weak economic momentum.

Closely watched core inflation, which excludes volatile food and energy prices and is considered a better indicator of underlying price pressures, remained stable at 2.7 percent, still well above the ECB's medium-term target.

Service price inflation – another component the central bank is keeping a close eye on – remained elevated at 3.9 percent. Citing stubborn inflation in the services sector, which hovers well above the ECB's inflation target, Lagarde told Le Monde that “caution is needed” when cutting interest rates.

Last month, the annual inflation rate was 1.7 percent, falling below the ECB's target for the first time in more than three years.

The ECB has said it expects headline inflation numbers to rise in the final months of the year, partly reflecting the impact of a temporary drop in energy prices a year ago.

Additional reporting by Ian Smith in London