Published: 2025-10-31T10:39:31.000Z

EZ HICP Review: Services Inflation Problematic?

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With what were previously unfavourable energy-related base effects reversing, EZ inflation edged down 0.1 ppt to 2.1% in October, largely in line with consensus thinking, but with the main core rate stable at 2.4%.  The latter reflected a slight pick-up in services (up 0.2 ppt to a six-mth high of 3.4%) that will fuel some worries among ECB hawks, albeit their main upside price worries now seem to be base around supply chain problems. But even though adjusted data also show fresh signs of services price resilience possibly re-emerging, overall soft core inflation is still evident as that same, adjusted m/m data (Figure 2) still show reassuring signs that suggest the ECB view for core inflation staying below 2% out to 2027 is very plausible. 

Figure 1: Headline Moves Back Toward Target as Services Edge Back Up

 

Source: Eurostat, CE

In contrast to food inflation in neighbouring economies (at least until recently), that for the EZ seems under control, actually slipping back further this month despite some adverse weather of late. Admittedly, services inflation, at 3.4% moved up further but from an August reading that was the lowest since March 2022 but despite this rise, it not only matches ECB thinking for the last quarter but still seems to be belatedly following in the footsteps of lower wage pressures and where survey data for the sector also shows weaker price pressures.  As a result, this trend and noise could bring the headline and core rate are seen dipping below 2% later in Q4 with base effects pulling the headline down toward 1.5% in Q1, especially if demand weakness starts to accentuate what have largely been supply factors driving the disinflation process hitherto (see below).  Notably, as recent calendar distortions unwind, what has looked like fresh price pressures in seasonally adjusted short-term m/m movements for core have reversed and are consistent with on-target inflation (Figure 2), albeit with some fresh spikes in adjusted services numbers!

Figure 2: Core Inflation Still Around Target in Shorter-Term Dynamics?

 

Source: Eurostat, ECB, CE

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I,Andrew Wroblewski, the Senior Economist Western Europe declare that the views expressed herein are mine and are clear, fair and not misleading at the time of publication. They have not been influenced by any relationship, either a personal relationship of mine or a relationship of the firm, to any entity described or referred to herein nor to any client of Continuum Economics nor has any inducement been received in relation to those views. I further declare that in the preparation and publication of this report I have at all times followed all relevant Continuum Economics compliance protocols including those reasonably seeking to prevent the receipt or misuse of material non-public information.