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Global Inflation WatchEurozone inflation seen easing in OctoberChart 1: Eurozone Inflation, Main ContributorsWe forecast eurozone October flash inflation (dueout Monday 31 October) at 2.9% y/y, down slightlyfrom the level of 2.95% reached in September. Thedata already published support our view that theindex rose by 0.2% m/m.3.02.52.01.5EnergyOctober’s preliminary inflation rate in Germany wasbelow market expectations at 0.0% m/m. Theexception came from the region of North-RhineWestphalia Land where the scrapping of student feespushed the regional CPI down 0.3% m/m. Withoutthis, national CPI would have been stronger. Thepreliminary CPI inflation slowed to 2.5% y/y, from2.6% in September. Meanwhile, HICP inflationprinted 2.8% y/y, down from 2.9%.Belgian’s CPI rose 0.15% m/m in October leavingthe annual inflation rate unchanged at 3.6% y/y. Thiswas in line with our forecast (no consensus forecastwas available). Belgian inflation is very sensitive toenergy prices and much more volatile than theeurozone average (Chart 2). When the base effect onenergy declines throughout the winter, Belgianinflation will converge with the eurozone average.Spanish preliminary HICP inflation, due on Friday28, is forecast to fall slightly in October to 2.9% y/yfrom September’s 3.0%. This is consistent with ourglobal view that inflation should start to ease indeveloped markets in October or November,because of a less adverse base effect on energy anddue to the global economic slowdown. Exceptionsremain possible, especially where tax hikes hitconsumers.The Italian CPI, due out on the same day as theeurozone flash estimate, is expected to print 3.1%y/y. September’s VAT increase was not entirelycaptured in September’s price index, the remainingimpact should appear in October’s data. Uncertaintyabout how much of the tax hike will be passed on toconsumers remains high: the weakness of economicactivity and particularly private consumption shouldcap price increases. Retailers, manufacturers andproviders of services will bear part of the fiscalburden through lower profit margins.1.00.50.0-0.5FoodCore01/10 07/10 01/11 07/11Source: Eurostat, BNP ParibasChart 2: Belgian versus Eurozone Inflation (% y/y)654CPI Belgium321HICP Eurozone0-1-206 07 08 09 10 11Source: Reuters EcoWin ProChart 3: Inflation Rates in Spain and Italy (% y/y)6Spain5432Italy10-1-205 06 07 08 09 10 11Source: Reuters EcoWin ProLuigi Speranza/Gizem Kara/Dominique Barbet 27 October 2011Market Mover51www.GlobalMarkets.bnpparibas.com