Inflation in the Euro Area surprised the upside, as it decelerated to 2.9% y/y in October from 4.3% y/y in the previous month. At the same time, core inflation, which excludes volatile items like food and energy, while also decelerating, appears to be more persistent than the headline. It slowed down to 4.2% in October from 4.5% in September, still significantly above the 2% target.

The breakdown by member states reveals curious trends, underscoring how different the economies within the currency union are. The separate October inflation rates are within an almost 10 percentage points interval. The lowest inflation is negative: 1.7% y/y consumer price drop in Belgium, while Slovakia posted the highest inflation in October (7.8% y/y).

The 20 member states form three clusters. Slovakia, Slovenia, and Croatia, which joined the Eurozone in January 2023, stand out as the markets with relatively high consumer price increases. On the other end of the spectrum are Belgium and the Netherlands, which are experiencing deflation. The rest of the member states are seeing inflation rates ranging from 2 to 4% y/y in October.

However, not all countries saw decelerating inflation – Greece, Estonia and Spain recorded faster price growth in October: by 1.5 pp, 1.2 pp, and 0.3 pp, respectively. On the other hand, the largest deceleration rate was recorded in Italy (by 3.7 pp to 1.9% y/y).

The persistent annual decline in energy prices contributed substantially to the slowdown of the headline figure. Energy prices in the Euro Area declined by 11.1%, which was the largest drop since the spring of 2020, as the onset of the pandemic brought economic activity to a halt. Of course, to a great extent, this can be explained by the low base effect, as the energy prices coupled with the supply crunch, were the initial catalysts of the elevated prices.

Among the member states with available data for October, Belgium and the Netherlands stand out, as energy prices for consumers there fell by 42.6% and 40.1% y/y, respectively. The majority of the countries, or 12 out of 20 experienced energy price decreases in September, for which the data is complete.