Once again, unlikely to bring clarity. We expect the NSA level of core and headline HICP at 119.91 and 126.81, respectively. Our forecast for core HICP is consistent with a MoM (saar) around 2½+ percent, in line with the signals of the distributions. Conditional on our forecast, the YoY on NSA data is expected at 2.83% for core HICP and at 2.39% for headline HICP. Figure 1 shows our MoM forecast errors on NSA data for both, core and headline HICP. In the last few months, the std error and std deviation of our MoM forecast for core (headline) HICP have been 5bps (7bps) and 13bps (17bps), respectively. The November reading is unlikely to bring clarity to whether and when core inflation can/will reach the 2% target. Conditional on our forecast, the NSA (unchained) level of core HICP, and even more of services HICP, would show limited progress (or no progress at all compared to 2023) and would continue to be consistent with a 2½+ percent reading by the end of the year.
Medium-term models unrevised. Conditional on our forecast, the medium-term models are unrevised, as our Q4 nowcast would be unchanged. The model forecasts remain above the latest ECB macroeconomic projection exercise.
As for the ECB, the big pictures seems intact. There is no certainty of reaching target in the medium-term (according to our model) but we think that their perception of the risks has changed and the focus is now on growth.
Figure 1. Underlying Inflation MoM forecast errors (on NSA data).
Our forecast
Unlikely to bring clarity. We expect the NSA level of core HICP and headline HICP at 119.91 and 126.81, respectively in November. Our forecast is based on the assumption that the NSA level of NEIGs prints at 115.60 and services prints 122.40. The NSA “unchained” level by year of NEIGs and core services can be seen here and here. Our forecast is broadly in line with consensus, and implies no deceleration for HICP services in NSA space. Our forecast corresponds to a NSA MoM growth rate of -46bps for core HICP and -17bps for headline HICP. In SA terms, we expect core HICP to expand at around 22bps MoM. The risks around our forecast are balanced this month. Our forecast implies the YoY of core HICP and headline HICP at 2.83% and 2.39%, respectively. In any case, as usual, we do not put much weight on the sectoral readings, and we will wait for the final distributions. Overall, the November HICP report is unlikely to bring clarity to whether and when core inflation can/will reach target as opposed to remaining above target (at around 2.5%) – see Figure 2.
Note: The “unchained” index of core HICP is shown in Figure 2 (for a discussion about “unchained” HICP see here and here).
Figure 2. NSA “unchained” core HICP level by year (1 = new year’s eve)
Implications for the “main” model
Implications for the medium-term model-based forecast of core HICP price inflation. Conditional on our MoM forecast, the models forecasts would be little changed. Using the unemployment rate as measure of “slack”, the forecast is at 2.8% (average YoY) in 2024, 2.5% in 2025, 2.3% in 2026, and 2.1% in 2027. Using the output gap, the forecast is: 2.8% in 2024, 2.4% in 2025, 2.2% in 2026, and 2.2% in 2027. The average of these forecasts is a bit above the latest ECB/NCBs staff forecast.
Figure 2. Model-based medium-term forecast of core HICP (YoY)
Using Urate as a measure of “slack”
Using output gap as a measure of “slack”
