Inflation in EUROZONE

INFLATION IN EUROZONE



Inflation in the eurozone fell more than expected in December, ending a two-month period when the rate was in double digits.

The flash index of consumer prices among the 20 European member countries rose at an annual rate of 9.2 per cent in December, down from the 10.1 per cent rate the previous month and a record annual rate of 10.6 per cent in October.

The drop exceeded expectations of a fall to 9.5 per cent in a Bloomberg survey of economists.

Core inflation, excluding volatile energy, food and fuel prices, however, rose to a new high of 5.2 per cent, highlighting policymakers’ fears that lower petrol and energy prices would bring down the headline rate without addressing underlying inflationary pressures.

With core inflation rising and more than twice the European Central Bank’s 2 per cent target, Philip Rush, founder of consultancy Heteronomics, said: “Inflation won’t be able to sustainably return to the target until this core problem is conquered.”

François Villeroy de Galhau, the French central bank governor, said on Thursday that the ECB would need to keep raising interest rates to address the problem of underlying price pressures.

He said the programme of monetary tightening would probably end by the summer, but did not say how much further he thought interest rates needed to rise from the current 2 per cent rate. Financial markets expect a peak in eurozone interest rates of roughly 3.5 per cent.

Inflation Rates Across Europe May Be Falling

…but they still are considerably above target

In the short term, unseasonably warm weather has calmed fears of an energy crunch and brought gas prices down to pre-war levels. But with the euro region now only expected to experience a short and shallow recession, demand — and inflation, in turn — could hold up.

Separate figures Friday showed economic sentiment recovering for a second month in the euro area in December, while remaining below its long-term average.

The latest ECB projections see price gains averaging 6.3% in 2023 and still remaining above the 2% target in 2025.