Intelligent Investment

Economic Watch: Euro Area Inflation Rises to 10% in September

03 October 2022 5 Minute Read

By Benjamin Pipernos Sehr Nawaz


Executive Summary:

  • The Harmonised Index of Consumer Prices (HICP) increased to 10% year-over-year in September 2022, up from 9.1% in August, representing another all-time high
  • Core inflation, which excludes energy, food, alcohol, and tobacco, was more subdued at 4.8%, but has ticked upward from 3.7% in August
  • CBRE expects that Euro Area HICP inflation will stay elevated in 2022 and well into H1 2023. Specifically, CBRE expects Euro Area inflation to decrease to 8.9% by the end of the year, returning to 2.7% by the end of 2023

September ECB Governing Council Meeting:

HICP increased by 10% annually in September, up 9% from August. Prices increased across all tracked components of the index, with the highest month-on-month changes in energy, food, alcohol and tobacco. Core inflation, which excludes energy, food, alcohol and tobacco was also up 4.8% annually, representing a 1.1% increase from August.


In recent times, new office space has been slow to come to market, partly due to rising material and labour costs. However, in the short to medium term, we expect construction cost inflation to be more benign across the main European markets, running close to 4% in many cities, partly due to easing supply chain bottlenecks and therefore moderating material cost increases for developers. As a result, we anticipate office completions to steadily increase in 2023 in markets including London and Berlin.


So far, footfall and retail sales across Europe have recovered to pre-pandemic levels, despite low consumer confidence stemming from rising inflation, increased interest rates, and concerns about the global economy. However, with prices rising further and the drop in consumer confidence deepening, we expect a shift in spending habits with consumers cutting back on discretionary spending, which is likely to weigh on retail real estate fundamentals.


Despite strong market fundamentals and continued European willingness to shore up domestic supply chains, rising energy costs are increasingly seen by European logistics occupiers as a serious concern. With vacancy rates at extremely low levels, the expected supply response is being hindered by raises in construction costs, which might extend the accelerated rental growth rates we have seen in the last few quarters.


Year-on-year food and energy costs have increased by 11.8% and 40.8% respectively, which will continue to put strain on household budgets. Major European markets like Germany, France, and the UK, have introduced measures to combat inflation, notably through caps on increasing energy and fuel prices and tax relief. Rental growth will likely slow, but the sector remains well positioned to withstand headwinds.

Looking Ahead

The interest rate on the main refinancing operations was raised 75 bps to 1.25% this month, marking a hawkish shift in the governing council’s stance. Persistent inflation will likely pressure the ECB to implement further rate hikes over the course of its two remaining meetings in 2022. CBRE forecasts annual average HICP inflation of 8% in 2022 and 4.6% in 2023, with the deposit rate peaking at 3% in Q2 2023.

Global energy and non-energy commodity prices have been falling since their peaks in the second half the year, and are expected to continue drifting down over the next twelve months. If this is correct, the key risk to inflation remains the second-round effects of rising prices on wages.

Higher inflation has resulted in the tightening of debt markets and subsequent price discovery across key sectors. Rental growth will likely slow, as index-based rent review clauses will only partially mitigate the uncertain economic climate. However, market fundamentals remain strong, and we expect investor appetite in high quality and sustainable assets to continue.