As for the euro area, Standard Chartered’s economist Akrit Agarwal expects no fireworks from euro area’s November inflation data. He believes the core inflation rate will come in at consensus estimates. According to Agarwal, the projected core inflation rate in the euro area is 2.5% YoY. That forecast is in line with predictions from market analysts.
Agarwal said a stronger euro more generally would contribute to alleviating inflationary pressures. He further pointed out how recent Spanish data may be influencing towards this, especially with respect to bilateral country PPIs. This evaluation coincides with the euro area’s economy printing more resilient near-term activity, fuelling concerns of an adverse shift in the inflation process ahead.
In October, Standard Chartered’s model had wrongly predicted that euro-area core inflation would be 2.3% y-o-y. Even with this miscalculation, the model now attempts a re-prediction that’s much closer to the truth. One surprise in the Spanish core inflation data came in October. It didn’t seem to matter much for the forecasts for November.
“Our inflation surprise model predicts that November euro-area core inflation (to be released Tuesday, 2 December) will print at consensus, which is currently at 2.5% y/y. Our model essentially uses a surprise (for Spain core inflation) to predict another surprise, which bridges the gap between country inflation releases and the release of aggregate euro-area-wide inflation data that follows later.” – Akrit Agarwal
Standard Chartered sees even bigger moves this month. The latter partly reflect ongoing disinflationary pressures from the appreciation of the euro, as well as recent developments in the energy and country PPI components. Agarwal noted that consensus forecasts had underappreciated potential of these factors to weigh on net euro-area core inflation. As an example, he stressed the significance of understanding this pass-through effect.
Given recent developments and the views above, Standard Chartered predict a final rate cut in this current easing cycle. They project this will occur by the second quarter of 2026. Agarwal warned that one danger of missing the inflation target is in 2026. He blamed such risks on deteriorating U.S. demand for euro-area exports and the stronger euro’s competitive squeeze.
Agarwal made a point about the trade diversion effects that are resulting from new cheaper imports from China. He considers this the most serious risk to the euro area economy in 2026.