Eurozone economy grows 0.4% in the third quarter, double the pace forecast

The stronger-than-expected output arrives with headline inflation at 3.8% and household price expectations rising, leaving the ECB little reason to cut.

The eurozone economy grew 0.4% in the third quarter from the one before, twice the 0.2% that had been expected. It is a better number than the forecasters allowed for, and it arrives at an awkward moment for those on the European Central Bank's Governing Council who want to keep easing on the table.

Inflation is the reason. Headline inflation in the euro area was 3.8% in September, up nearly a full point from August and above forecasts. Core inflation, which strips out energy and food, edged up to 2.5% from 2.4%, so the pressure is not confined to volatile items. Germany, the largest economy, shows the same thing: national consumer prices rose 3.3% in September.

Households are noticing. The ECB's monthly consumer survey puts one-year inflation expectations at 3.0% and three-year expectations at 2.9%, both higher than in July. Expectations that drift up are what central bankers fear most, because they feed into wage demands and pricing.

So the ECB's wait-and-see stance is harder to hold. Growth that beats forecasts gives the hawks on the Council another argument for resisting further cuts, even as the doves can point to softening consumer confidence. On this evidence the hawks have the better of it: an economy growing faster than expected with inflation at 3.8% does not need more stimulus, and easy money now would risk locking in price rises that households already expect.

For US markets the read-through is limited. This is a eurozone growth and policy story with no direct channel into the Federal Reserve's path or American corporate earnings, and it is unlikely to move US equities on its own.