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Rising food prices can be a headache not only for households in the eurozone but also for the European Central Bank. While overall inflation has normalised and sits close to the ECB’s 2% medium-term target, food inflation "since 2022 is clearly exceptional and persistent", said the central bank in a recent blog post.According to the report, consumers pay roughly a third more than before the COVID-19 pandemic to put a meal on the table. The bank added that food prices have increased by more than 40% since 2015, influencing the ECB's rate decisions.

Inflation has settled considerably in the eurozone, descending from a peak of 10.6% in October 2022 to 2% recently. Yet, according to the European Commission's latest consumer scoreboard report, one in three people worry about being able to afford the food they prefer to buy.The ECB notes that food prices matter even more for lower-income households, where the food bill takes a larger share of their income.And rising food prices are not going to slow down any time soon, according to the ECB's expectations.

According to Eurostat, meat prices for beef, poultry and pork have become 38-44% more expensive since 2015. And the ECB notes that these food items cost more than 30% more than at the end of 2019. Over the past six years, milk, butter, coffee, olive oil, cocoa and chocolate have become particularly expensive.European food price increases are partially explained by a jump in energy prices after Russia invaded Ukraine in 2022. Rising incomes, globally and locally, have also increased demand, driving up food prices. Meanwhile, extreme weather events are having an increasingly worrying impact on crops. Droughts in Spain have seriously impacted olive oil prices, whereas coffee and cocoa have become a lot more expensive following adverse weather in key exporting countries such as Ghana and Côte d’Ivoire.

These events linked to climate change "are becoming more frequent and can severely disrupt food supply chains," according to the ECB's blog post.

Causes and consequences for monetary policy

Buying food is non-negotiable, and therefore food prices matter more strongly for inflation perceptions and expectations, which are crucial for the ECB to ensure price stability.The central bank's inflation target, which is 2% in the eurozone, refers to the HICP headline price index. This index measures the price change of a typical consumption basket, energy, services, consumer goods and food.Food price inflation in the eurozone is currently the highest across the four categories, standing at 3.2%. And food price increases are weighted at around 20% in the HICP headline price index, more than twice the weight given to energy, for instance.

When food prices go up, including for chocolate, coffee and olive oil, they have a higher impact on inflation and the monetary policy surrounding it, compared to rises in energy prices.The ECB provides three reasons why food prices are of particular interest at the moment.

First of all, there is a gap that has opened up between food and overall prices, and it is much larger and more persistent than in the past.

Secondly, food prices largely shape inflation expectations, which are also closely watched by the ECB when it decides on the bloc's monetary pathway. Thirdly, food price increases hit poorer households harder than others.

Ultimately, if the ECB judges its 2% inflation target to be at risk and raises key interest rates, the resulting higher borrowing costs will feed through the banking system, discouraging investment and weighing on the broader eurozone economy.

Source: Yahoo Finance

The European Commission will propose cutting steel import quotas by nearly half and hiking duties on volumes above those levels to 50% in line with tariffs imposed by the US and Canada, a source briefed on details told Reuters on Wednesday.

The measures will be part of a new package for the steel sector set to be officially unveiled on Oct 7. Stephane Sejourne, the Commission's executive vice-president for industrial strategy, briefed steel associations on Wednesday ahead of next week's announcement.

The bloc's current steel safeguards will expire on June 30 next year. The EU and Western allies are trying to contain the overcapacities created by subsidised Chinese factories in steel and other sectors.

The EU already tightened current steel import quotas by 15% from April 1, and the Commission is investigating market trends for potential aluminium safeguards as well as export duties on scrap metal.

Steel jumped into the spotlight early this year after US President Donald Trump hiked tariffs on foreign steel and aluminium imports to 50%.

After reaching a general trade agreement with Trump in late July, the EU said it would work closely with Washington in a "metals alliance" to ringfence their respective production from China. European steelmakers still face an export tariff of 50% to the US.

EU trade commissioner Maros Sefcovic met US Trade Representative Jamieson Greer in Asia earlier this month to reignite the talks. EU sources previously told Reuters the new safeguards would be a jumping-off point for detailed negotiations with Washington.

Source: Theedgemarkets

Gold prices soared to new highs on Wednesday, as the U.S. government entered its first shutdown in almost seven years after lawmakers failed to reach a deal on government funding.

While the impact of government shutdowns on markets is usually minimal, the timing of this one is significant. Critical U.S. jobs data due to be published on Friday will be delayed, clouding the outlook for the Federal Reserve just weeks ahead of its next meeting. President Donald Trump has also threatened to use the shutdown to cut "a lot" of federal employees, who are ordinarily furloughed during a shutdown and brought back to work once it ends.

With no clear path toward a deal, it's also unclear how long the shutdown will last. During Trump's first term in office, a 34-day partial shutdown took hold — the longest in history.

Amid the uncertainty, risk assets lost ground, while gold — typically viewed as a safe haven asset in times of economic or geopolitical turbulence — continued its bumper rally to hit its 39th record high this year.

Spot gold was trading at $3,893.06 an ounce by 5:02 a.m. ET, while U.S. gold futures for December delivery extended gains to reach $3,918.10.

$4,000 gold?

"Gold's status as a safe haven is well publicized, but the inexorable rise in the gold price over the last few years has been truly astounding, with the metal hitting fresh highs today," Michael Field, chief equity strategist at Morningstar, told CNBC in an email on Wednesday.

While he noted that the driver behind Wednesday's rally was the U.S. government shutdown, Field argued that it was "just the straw that broke the camel's back."

"Two major ongoing conflicts, political instability in France, newly announced tariffs, all of this is combining to create a very unstable picture for investors," he said. "And when the going gets tough, gold gets a boost."

Philippe Gijsels, chief strategy officer at BNP Paribas Fortis, has long held the view that gold can cross the $4,000 mark — and he now believes the metal can go even higher.

"Gold is fast closing in on the 4000 target that we put forward … about a year and a half ago," he said. "Back then, the move was solely driven by central bank buying while investors were net sellers of the yellow metal, [but] since the beginning of the year, investors have come on board which has clearly accelerated the move to the upside."

He argued that amid ongoing uncertainty and volatility, and an environment of sticky inflation across the globe, investors were broadly taking the view that they should diversify away from the classic 60/40 portfolio strategy "with hard assets" like gold.

"Still, we are still very early in the game as gold, and gold related investments are barely 2% of an average investment portfolio worldwide," Gijsels added. "To say it in baseball terms, we are only in the second or third inning. $4,000 [will not be] the endpoint — just the start of the strongest bull market in precious metals the world has ever seen."

In a note to clients on Wednesday morning, UBS Strategist Joni Teves also argued that gold remains under-owned.

"We expect gold's bull run to continue over the coming quarters, driven by rising investor positions and a continued broadening in gold's investor base. With the Fed easing cycle under way, dollar weakness and declining real rates should be bullish for the gold price," she said.

Teves noted that UBS expected the rally to taper off toward the end of 2026, in anticipation of the end of the Fed's easing cycle and improving economic conditions.

"That said, given the structural shift in gold's role to becoming a core part of strategic asset allocations, we expect the correction to ultimately be contained and for prices to stabilise at historically higher levels over the long run," she added.

Source: CNBC

Key points:

ECB UNBOTHERED BY UPTICK

INFLATION TOO LOW?

Source: Reuters

Euro-area inflation accelerated in September, cementing the European Central Bank’s plans to keep interest rates steady for now.

Having matched the 2% goal in August, consumer prices rose 2.2% from a year ago on energy base effects and services costs. That’s in line with the median estimate in a Bloomberg poll of economists.

A measure of underlying pressures excluding volatile energy and food costs held at 2.3% as expected, Eurostat said Wednesday.

ECB officials are content with where borrowing costs are after their latest quarterly projections showed inflation not deviating excessively from the target and the region’s 20-nation economy withstanding higher US tariffs.

Investors and analysts don’t see the ECB adding to the eight quarter-point reductions in rates enacted so far, though some policymakers remain concerned that consumer-price growth will be too weak.

A day before the data release, President Christine Lagarde described risks to inflation as “quite contained in both directions” — reiterating that policy settings are “in a good place.” The key deposit rate currently stands at 2% and is likely to remain there at the next decision on Oct. 30.

Looking ahead, forecasts suggest inflation will dip to 1.7% next year, recovering somewhat to 1.9% in 2027 as a slew of new European government spending on defense and infrastructure provides the economy with fresh impetus.

Backing officials who refuse to fret over small deviations from the inflation target, an ECB survey last week showed households anticipate even stronger price growth over the next 12 months.

Speaking earlier Wednesday, ECB Vice President Luis de Guindos said the current level of interest rates is the “correct one.”

Source: Bloomberg Europe

Polish and Czech manufacturing sectors remained in contraction in September as a lack of new orders pulled activity lower, although signs of stabilisation were building, surveys showed on Wednesday.The data pointed to weak manufacturing continuing to weigh on growth in the third quarter, with firms contending with weakened demand, especially in western trading partners like Germany.Industry has been the missing leg of economic recovery in central Europe, where renewed household demand has been the key driver for growth this year.

In Poland, S&P Global's Purchasing Managers' Index (PMI) rose to 48.0 in September, from 46.6 in August, but stayed stuck below the 50 mark dividing contraction from growth for a fifth straight month.The data "confirms the continuing difficult situation in the domestic manufacturing sector, although there are signs of stabilisation and a slowdown in negative trends in production, orders, and employment," ING said.Similarly, Czech PMI by S&P Global was in contraction territory for a third straight month, inching down to 49.2 in September from 49.4 in August.

After briefly climbing above 50 earlier this year, the surveys from both countries showed more signs of stabilisation, with companies reporting higher confidence in their outlooks.Trevor Balchin, Economics Director at S&P Global Market Intelligence, said signs were "pointing to a potential recovery in business conditions in the fourth quarter."In the Czech case, though, Banka Creditas chief economist Petr Dufek said recovery in manufacturing may not be quick, with the September survey still showing growing inventories and continuing layoffs.

"It is therefore clear that growth of the Czech economy will continue to rely on the supply side of services and the demand side of household consumption, not industry and investment," he said.In Hungary, PMI published by the country's Association of Logistics, Purchasing and Inventory Management rose above the breakeven point, to 51.5 in September, from a revised 49.1 in August.A majority of index components, including new orders and production volumes, increased from August, the publisher said.

New orders also rose in the BCR Romania Manufacturing PMI, whose headline reading of 49.8 in September was a 15-month high.The survey "suggests an improvement of the external demand which is crucial for a sustained recovery of the sector moving forward," said Vlad Ionita, an analyst at Erste Group Bank subsidiary BCR.

Source: TradingView