Finimize - 🇪🇺 European inflation was warm

What’s going on here?

Consumer prices in the eurozone rose 2.3% in November, popping above the European Central Bank’s (ECB’s) 2% inflation target for the first time in three months.

What does this mean?

The annual pace of inflation didn’t surprise many folks: that 2.3% mark was precisely what economists had predicted. And there were two big culprits behind the uptick: energy and services. On energy, the cost of fuel and other things fell a year ago, making the most recent month hotter by comparison. And on services, well, that’s where all the “sticky” in “stubbornly sticky inflation” tends to be. After all, when you’ve been willing to shell out more and more for stuff like airline tickets or, even, tax advice in recent years without a shrink in demand, those prices are going to just keep going up at a similar speed. And that’s especially true when companies are paying higher costs – and wages – themselves.

Why should I care?

For markets: A downward path for interest rates.

Even though inflation has become a tad hotter in Europe, investors are still betting on a 0.25 percentage point trim to the bloc’s interest rates in December. (Though the folks who thought the ECB would slash rates more sharply have all but thrown in the towel.) Looking ahead, some economists think the ECB will keep cutting through early 2025, sending its key deposit rate down to 2.25% by April (from 3.25% now). And with Europe’s biggest economies showing signs of softening, the central bank can deliver those stimulative rate reductions without risking an ugly new rise in inflation. In fact, the consensus of pros is predicting that inflation will slide back to around 2% next year, right on target for the ECB. That is, of course, unless eurozone growth comes up a lot shorter than expected or a new batch of tariffs throws a wrench into the works.

What’s going on here?

India may have the fastest-growing economy in the world, but in the latest quarter, it wasn’t nearly as speedy as expected.

What does this mean?

The Indian economy’s second quarter wrapped up in September, with growth in that period disappointing basically everyone. According to data released Friday, the economy grew at just 5.4% compared to the year before – well short of the central bank’s optimistic 7% target and not terribly close to economists’ more reasonable 6.5% forecast. In fact, it was India’s slowest expansion since late 2022 – with a dropoff in manufacturing and mining partly to blame.

Why should I care?

Zooming in: A rock and a hard place.

All things being equal, a stumbling economy is usually met with a cut in interest rates to boost growth. But here’s the twist: in India, consumer prices have also recently jumped up. So if the country’s central bank lowers borrowing costs now, it will risk pushing inflation even higher and sparking a whole host of other economy-dragging problems. So one way or another, India’s economy is likely to be on rocky terrain for a few more months.

The bigger picture: Home-field advantages.

Tensions between the US and China have made the global trade outlook tough to read. But India's emphasis on boosting consumer demand at home could shield it from any potential fallout. That’s a lucky spot to be in for firms operating in India, facing less scrutiny than they might get in other markets. And that kind of advantage could lure other businesses across its borders. For example, Chinese companies could opt to make products for Indian consumers right where they live, rather than for export, potentially avoiding the global reach of US tariffs.