The slipping pace of activity across the EU has already seen the European Central Bank cut rates twice this year. Now more cuts are on the cards after the flash inflation figure for September came in under the 2% target.
The 1.8% annual reading was due to slipping activity and price pressures in Germany, Spain and France, in particular.
The monthly early update from Eurostat showed the bigger-than-forecast fall happening because of weaker energy costs and lower goods prices.
Prior to the report on Tuesday, markets had been 50-50 on whether a third rate cut would happen this month after cuts in June and September.
Now markets are seeing a 90% chance of a third cut this month.
Economists at Morgan Stanley, Goldman Sachs and JPMorgan expect consecutive 25-basis-point cuts starting in October, with rates potentially reaching 2.5% by March 2025.
Core inflation, which excludes volatile energy and food prices, eased to 2.7%, from 2.8% the previous month. Services inflation, a much-watched component that has been hard to tame and still has the highest rate of inflation in the EU, fell to 4%, down from 4.1%.
ECB President Christine Lagarde said that while services inflation remains high at 4%, "we have reasons to believe that services is also beginning to abate, slowly and gradually, so we are heading in that direction of reduced inflation," she said.
“Inflation is now under the baseline predicted by the ECB,” she said, earlier than projections of a return to the 2% target by the end of next year.
But it's a different story in the US, with the monthly job vacancies data showing a rise, instead of a fall. The so-called JOLTS data (which also measures lay-offs and departures) showed a rise 8.04 million in August from 7.71 million in July.
The Bureau of Labor Statistics’ report showed vacancies at a three-month high, led by jumps in construction, state and local government sectors.
With the jobs report for September out on Friday night (Australian time), the JOLTS data suggests the labour market may have cooled, but it is not getting colder.
Hirings slipped to 5.3 million, with the hiring rate softening to 3.3%, the lowest since 2013, excluding the pandemic onset. Lay-offs also were little changed at 1.6 million, and the quits rate eased to 1.9% (from 2% in July), the lowest since June 2020.
That supports the tenor of the weekly initial and continuing jobless benefits claims. In the week to September 21 (the latest data), the number of people claiming unemployment benefits dropped by 4,000 from the previous week to 218,000, which was below market expectations of a rise to 225,000, and reaching a new four-month low.
Even though that’s a little higher than figures earlier in the year that were under or around 200,000, it is still historically low. Outstanding claims rose 13,000 to 1.834 million in the previous week. The four-week moving average for initial claims, which reduces week-to-week volatility, fell by 3,500 to 224,750.
The US jobless rate is 4.2% — the same as in Australia. Labour force data, while showing a softening in the past year, confirms there is no crisis in employment in either country. Wage growth in the US is a touch lower than Australia, but US inflation is significantly lower in America than in Australia.
