Standard Chartered's inflation model uses surprise vs consensus for Spain core inflation to predict region-wide surprises. It predicts that euro-area core inflation for November will match the consensus estimate of 2.5% y/y. The effects of a stronger EUR and Spain data could offset inflationary pressure from country PPIs, Standard Chartered's economist Akrit Agarwal reports.

Near-term risks of undershooting look smaller

"Our inflation surprise model predicts that November euro-area core inflation (to be released Tuesday, 2 December) will print at consensus, which is currently at 2.5% y/y. Our model essentially uses a surprise (for Spain core inflation) to predict another surprise, which bridges the gap between country inflation releases and the release of aggregate euro-area-wide inflation data that follows later."

"The key contributors to our prediction this month are (1) disinflationary pressure from EUR appreciation and (2) energy and country PPI developments. Consensus forecasts may not have fully accounted for the pass-through of these factors to euro-area core inflation. Spain’s core inflation data – which was in line with expectations – was not a significant contributor to our prediction this month."

"In October, our model incorrectly predicted that euro-area core inflation would print at consensus at 2.3% y/y, despite a surprise to Spanish core inflation. Since then, market pricing of ECB rate cuts has continued to drift lower. We expect a final rate cut in this easing cycle in Q2-2026; near-term activity has been stronger than expected, but we see risks of undershooting as more of a concern in 2026 given weaker US demand for euro-area exports, the effects of a stronger EUR and the trade diversion effects of cheaper imports from China. The market sees a cut by Q2-2026 as a moderate possibility, with 8bps of cuts priced in."