UBS Economics-European Economic Perspectives _Eurozone Inflation likely t...-118355673

ab21 October 2025Global ResearchEuropean Economic PerspectivesEurozone: Inflation likely to ease to 2.1% in OctoberUnderlying inflation broadly stable in SeptemberThe final Eurozone HICP inflation estimate for September (published on 17 October) confirmed the rise in headline inflation of 0.2pp to 2.2% y/y, while core inflation was marginally revised up to 2.4% y/y (from 2.3%, as the unrounded number changed marginally from 2.347% to 2.355%). On balance, progress in underlying inflation was disappointing in September with most measures either staying unchanged (supercore and domestic inflation) or edging a bit higher (exclusion measures and trimmed means) (Fig. 1). The breadth of inflation rose again after some narrowing in August with the share of items seeing price increases above 2% rising to 51% from 46% (Fig. 7). The monthly increase in (nsa) services inflation (excluding travel-related items) was a touch stronger than last year (Fig. 13). The sequential monthly run-rate was down in services (-0.1pp to 0.2% m/m swda) but up in goods (+0.1pp to 0.1% m/m swda) (Fig. 9). As a result, the annualised 3m/3m rate of seasonally adjusted inflation was down for services (-0.2pp to 2.8%), but up for goods (+0.4pp to 1.5%) (Fig. 12). Inflation expectations were largely unchanged with the exception of a tick-up in 1-year consumer expectations. In contrast, developments on the wage front have remained positive with our monthly tracker of Eurozone negotiated wages (excluding one-offs) pointing to further easing to 3.9% y/y in September, down from 4% in July and 4.4% in June (Fig. 25). Outlook for October: Headline and core -0.1pp to 2.1% and 2.3%, respectivelyWe forecast October Eurozone inflation (out on 31 October) to decline by 0.1pp to 2.1% y/y, largely driven by falls in energy (-0.3pp to -0.7% y/y) and food inflation (-0.4pp to 2.6% y/y). While rounded core inflation is likely to show a decline to 2.3% from 2.4%, our unrounded forecast is still at 2.35%, effectively unchanged from September. Within core inflation, we expect both services and goods inflation to remain unchanged at 3.2% y/y and 0.8% y/y, respectively. At the country level, we expect inflation to ease in most of the large Eurozone countries. Specifically, we expect inflation to fall 0.2pp to 2.2% y/y in Germany, by 0.1pp to 1% y/y in France, 0.2pp to 1.6% y/y in Italy and by 0.1pp to 2.9% y/y in the Netherlands. In contrast, Spanish inflation is likely to remain unchanged at 3% y/y.ECB easing cycle has likely ended; ECB on hold next weekWe firmly expect the ECB to keep the deposit rate at 2% (i.e. broadly neutral) on 30 October, in line with current market pricing. We expect the ECB to reiterate that it sees itself "in a good place" while stressing that it will maintain a data-dependent, meeting by meeting approach and not pre-commit to a particular rate path. Overall, we see next week's gathering as an "interim meeting" that will allow the Governing Council (GC) to discuss the lates