The energy shock quickly passed through to consumer prices in August and September. For most developed market countries this was sufficient to partially reverse the decline seen in annual inflation over the past year. “Although the conflict in the Middle East and therefore energy markets remains highly uncertain, data points to a re-normalisation in the monthly inflation trend in October (Figure 1) and resumption of falling annual inflation rates (Figure 2) which in some countries will be greatly accelerated by base effects too,” Michael Metcalfe, Head of Macro Strategy at State Street Global Markets, says in his latest Inflation In Focus piece (see attached).

Prices in the Eurozone look set to follow a similar pattern as the US/Canada. In the first 22-days of October, the Eurozone price level is only 4bps higher and even with falls in transport prices, core inflation has so far risen less than 10bps. Both are below typical pre-pandemic averages for PriceStats in October, but perhaps more importantly this sub-normal price performance is significantly below the sharp rise in the official Eurozone data seen last October. “This should pull headline annual inflation back below 3% and core inflation to 4% or below. While this is base effect driven, the sub-seasonal monthly inflation rates should also encourage the ECB that disinflation is back on track,” Metcalfe explains.