Stubborn Spanish inflation in October keeps ECB rate hike in play

• Spain's final October CPI came in at +4.9% year-on-year, matching the preliminary estimate.
• The prior month also recorded +4.9%.
• The October final HICP rose 4.9% annually, unchanged from the preliminary reading.
• This compared with a prior rate of +5.0%.
• Core inflation in October stood at 3.1% year-on-year.
• The core rate was unchanged from September's +3.1%.

The final report confirmed no revision to the preliminary figures, underscoring that Spanish inflation remains sticky with headline prices close to 5% in October. The recent drop in energy costs might eventually provide some relief, but it will take time to filter through to the economy.

For now, inflation pressures are at an uncomfortably high level for Spain indeed.

Core annual inflation was also confirmed at 3.1% in October, unchanged from September. Even so, it remains well above the ECB's comfort zone as price pressures continue to diverge from the 2% target.

Together with the earlier French report, this reinforces that inflation remains a major threat for the ECB as the year-end approaches.

Currently, markets price in roughly 82% odds of an ECB move in December. Policymakers may feel compelled to act given concerns that weakening economic growth could complicate their task next year.

Overall, the ECB faces a difficult balancing act: managing persistent inflation without derailing the broader economy.