The 0.5 percentage point increase from November's figure (2.4%) is likely driven by a subdued decline in energy prices
advertisementFood, alcohol and tobacco were expected to continue to have the highest inflation rate in December (6.1%, compared to 6.9% in November), followed by services (4.0%, stable compared to November). However, the slowdown in energy inflation decreased from -11.5% in November to -6.7% in December.
This news is likely to dampen expectations that the European Central Bank will cut interest rates early in 2024. The European Central Bank's interest rate has been unchanged at 4% since October last year, following a steady rate hike that began in July 2022.
Late last year, ECB President Christine Lagarde expressed concern that inflation would rise again after energy price subsidies were removed. He said in November that he expected the ECB to start cutting interest rates “in the next few quarters”.
The rise is in line with expectations, as energy prices “have a very strong influence on headline inflation across e-books,” said Zsolt Dalbas, a senior researcher at the Brussels-based think tank Bruegel. said.
Darvas said “the important news is that there was a marginal, very small decline” in so-called core inflation, which excludes food and energy prices, from 3.6% in November to 3.4% in December. .
“I think this is more important news because it reflects the underlying developments in inflation. So headline inflation could rise slightly in the coming months. However, ECB policymakers What we are paying attention to is how core inflation will develop.
However, Darvas said the core inflation rate of 3.4% was still far from the ECB's European Central Bank inflation target of 2%.
According to Darvas, consumer purchasing power is increasing as wage growth accelerates and inflation generally slows, which could imply demand pressure and, as a result, lower inflation. It is possible that Koshin is becoming stubborn.
“Therefore, I don't expect the ECB to stop cutting rates any time soon,” Darvas said. “My expectation is that the European Central Bank will maintain current interest rates for many more months as core inflation remains low. Probably,” he added. This is significantly higher than the target of 2%. ”
Darvas also pointed to the escalation of the Middle East conflict as a risk, particularly for global oil and energy prices. Such an expansion “would have repercussions around the world, including in Europe and the euro area. And it could increase inflationary pressures for a longer period of time.”
