Central banks don’t want to find inflation is more stubborn than they thought and reverse course. 
| Photo Credit: REUTERS

Inflation in the 20-nation eurozone crept lower to 2.5% in June, but remained stuck above the level favored by the European Central Bank (ECB), which is in no hurry to add more rate cuts after a first tentative reduction in its benchmark rate.

The figure released Tuesday was down from 2.6% in May, welcome news as inflation continues to fall from its peak of 10.6% that robbed consumers of spending power and mired the European economy in months of near-zero growth.

But key indicators Tuesday remained at levels that suggest inflation may remain stuck between 2% and 3% for a while yet. Inflation in services prices ran at 4.1%, unchanged from the month before.

The ECB’s caution in making sure inflation is under control comes as the U.S. Federal Reserve holds off on cutting rates from current highs. The central banks don’t want to belatedly discover that inflation is more stubborn than they thought and reverse course — a mistake that would make inflation harder to wring out of the economy and would ding their credibility into the bargain.

High rates aim to squelch inflation by making it more expensive to borrow money to buy goods or invest in new factory equipment. That relieves pressure on prices — but can also dampen growth. That’s the tightrope the ECB and the Fed are trying to walk: make sure inflation is contained, without pushing their economies into recession.

ECB President Christine Lagarde said the bank needed to make sure inflation was firmly under control before cutting its key rate again after a first, quarter-point cut on June 6 to the current 3.75%.

Equity benchmark indices rebounded in early trade on October 27 after facing massive drubbing of late amid recovery in Asian markets.
| Photo Credit: Paul Noronha

Equity benchmark indices rebounded in early trade on October 27 after facing massive drubbing of late amid recovery in Asian markets.

The 30-share BSE Sensex jumped 411.17 points to 63,559.32 in early trade. The Nifty climbed 115.9 points to 18,973.15.

Among the Sensex firms, NTPC, Mahindra & Mahindra, State Bank of India, Infosys and Maruti were the major gainers.

Asian Paints emerged as the only laggard from the pack.

In Asian markets, Seoul, Tokyo, Shanghai and Hong Kong were trading in the positive territory.

The U.S. markets ended lower on October 26.

The European Central Bank left interest rates unchanged on October 26 for the first time in over a year.

“After six continuous days of losses triggered by the elevated bond yields in the U.S. and tensions in West Asia, the market appears to be oversold,” V.K. Vijayakumar, Chief Investment Strategist at Geojit Financial Services, said.

He added that the US economy’s resilience is surprising.

“The Q3 GDP growth at 4.9% means the Fed will continue to be hawkish and the likely ‘higher for longer’ interest rate regime is negative from the stock market perspective,” Mr. Vijayakumar added.

On the positive side, valuations in India, which were high, have now turned fair, and in sectors like banking valuations are attractive, he said.

Global oil benchmark Brent crude jumped 1.25% to $89.03 a barrel.

Foreign Institutional Investors (FIIs) offloaded equities worth ₹7,702.53 crore on October 26, according to exchange data.

The BSE benchmark slumped 900.91 points or 1.41% to settle below the 64,000 mark at 63,148.15 on October 26. The Nifty dived 264.90 points or 1.39% to 18,857.25.