Standard Chartered’s model for predicting euro-area core inflation suggests that November’s figure will align with the consensus estimate of 2.5% year-on-year. This model takes Spain’s core inflation surprises compared to consensus to anticipate broader euro-area surprises. The influence of a stronger Euro and Spanish data may counter inflation pressures from country producer price indices (PPIs).

November Core Inflation Forecast

The model forecasts that euro-area core inflation for November will match consensus, based on data available until 2 December. Predictions are influenced by factors such as disinflationary pressures from Euro appreciation and developments in energy and PPIs. Spain’s core inflation aligned with expectations and did not play a major role in this prediction.

Previously, in October, the model incorrectly predicted a euro-area core inflation consensus of 2.3% year-on-year. The market’s anticipation of European Central Bank rate cuts has lessened, with a potential final rate cut anticipated in Q2-2026. The focus has shifted to potential undershooting risks in 2026 due to weakened US demand for euro-area exports and effects from a stronger Euro and Chinese imports. The market considers a rate cut by Q2-2026 as a moderate possibility, with 8 basis points of cuts currently anticipated.

With the November core inflation data for the Euro area due on December 2nd, the primary expectation is for a reading of 2.5%, perfectly in line with consensus. This suggests that the immediate risk of a major market shock is low. Traders might consider strategies that benefit from reduced volatility in the days leading up to the announcement.

We’ve seen the Euro recently climb to 1.12 against the US dollar, its highest level since the third quarter of 2024, which is helping to suppress imported inflation. This is offsetting some of the pipeline pressures noted in recent country-level data, such as Germany’s producer prices which rose by 0.3% last month. This balance of forces supports the view of an on-target inflation print.

Potential Undershooting Risks in 2026

However, we must remember this model’s prediction was incorrect when looking back at the October 2025 data, as it failed to foresee the upside surprise when inflation printed at 2.4% versus the 2.3% consensus. Therefore, while low volatility is the base case, holding positions that protect against another unexpected outcome is a prudent hedge. The market can be easily caught off guard again.

Looking further ahead, recent economic activity has been stronger than forecast, with the flash composite PMI for November hitting 51.2, beating expectations of 50.5. Despite this, we maintain our view that the European Central Bank will deliver a final rate cut in the second quarter of 2026. The market is currently underpricing this possibility, with only about 8 basis points of cuts factored in.

This presents a potential opportunity for traders, as the risk of inflation undershooting its target in 2026 is growing. Weaker demand for Euro area exports is a real concern, especially with recent data from the US showing its ISM Manufacturing index fell to 48.9, indicating a contraction. This, along with the strong Euro, could force the ECB’s hand, making derivative positions that anticipate lower rates in mid-2026 look attractive.

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