The safest part of your portfolio is taking the biggest hit
Eurozone inflation jumped to 3.2% and the ECB raised rates again. Most investors are now watching energy and retail stocks. But the bill for this shock is landing somewhere else – in the part of the portfolio most people consider a quiet zone.
Key points
Eurozone inflation jumped to 3.2%, but 91% of the consumer basket is rising at only 2.1%
The ECB raised rates unanimously, yet 91% of economists in a Reuters poll believe the cycle is over
Europe's largest residential landlord is at a one-year low, though it didn't change its 2026 outlook
The German 10-year yield is the highest since 2009, and the bill is being paid by the "40" in the 60/40 portfolio
Gas storage is 16 percentage points below the five-year average and will decide which scenario unfolds
Nine percent of the basket, forty percent of inflation
The number confirmed by Eurostat on September 17 looks at first glance like a return of old problems: eurozone inflation accelerated in August to 3.2% from 2.9% in July. A year ago it was exactly on target at 2.0%. But break the consumer basket into pieces and the story changes.
Energy has a weight of only 9% in the eurozone basket. In August it still rose 14.3% year-on-year and contributed 1.29 percentage points to overall inflation. In other words: less than a tenth of the basket produced roughly 40% of all price rises. The remaining 91% of the basket, according to Eurostat data, is rising at 2.1%, essentially at the central bank's target.
Other items are behaving rather well. Services, which the ECB feared most for a long time, slowed to 3.0%. Food is rising only 1.1%, non-energy industrial goods 1.2%. A year ago, energy was still pulling inflation down (year-on-year -2.0%); today it is pushed up by the war in the Middle East, expensive oil and gas before winter.
The dispersion across Europe is huge and shows this is an external shock, not an overheated economy: Romania reports 6.3%, Lithuania 5.6%, Sweden only 0.3%.