Eurozone Recovery Hides Brewing Inflation Storm

The Eurozone economy seems to be on the mend, at least based on recent PMI indicators and Germany's ifo index. The composite PMI rose to its highest level in over three years, driven by a strong services sector that is not yet showing signs of being affected by higher inflation. However, Oxford Economics notes that input prices and output prices are rising at a faster pace, particularly in the services sector.

This surge in inflationary pressures is likely to prompt the European Central Bank to implement two more rate hikes this winter. The threat of a ban on US diesel exports also adds another layer of risk to the energy market, given Europe's increased dependence on US supplies. According to Oxford Economics, input prices and output prices rose at a faster pace in September, particularly in services.