Implications: Energy and food price increases have been curbed.
Energy prices fell 11.5% from a year ago, when fuel and electricity costs rose nearly 35% due to energy shortages caused by Russia's war in Ukraine. Food prices rose 6.9%, about half of the same period last year.
So-called core inflation, which excludes food and energy prices, rose 3.6%, slowing significantly from the previous month.
Governments in France, Germany and Spain are working to lower food and utility bills to help consumers struggling with the cost of living crisis. In Belgium, prices have fallen sharply for the second month in a row. “The process of deinflation is progressing even more rapidly than we expected,” Bart Collein, senior eurozone economist at ING Bank, said in a note to clients. “This signals growing signs of an impending victory on inflation for the European Central Bank.”
Behind the numbers: Prices have fallen significantly in the largest economies.
Germany's inflation rate fell more than expected to 2.3% year-on-year, supported by easing price pressures in all sectors of the economy. The government is subsidizing food and energy for households, but that program is about to end.
In Spain, annual inflation fell to 3.2% in November due to lower fuel prices and heavily discounted travel in the tourism industry, a major driver of growth.
According to Eurostat, the French economy's inflation rate was 3.8% in November compared to the same month last year, and 4.5% in October.
“It's a real success to control inflation in two years. In the 1970s it took 10 years,” Economy Minister Bruno Le Maire said in an interview with France Interradio on Thursday. He added: “The price to pay is higher interest rates, more difficulty in obtaining financing and a corresponding slowdown in the economy.”
Remember: As growth slows, inflation is expected to persist.
Central Bank President Christine Lagarde said last month that although inflation was falling rapidly, prices were “expected to remain too high for a long time, and domestic price pressures remain strong.”
The central bank will gradually raise interest rates starting July 2022 in a bid to curb the sharp rise in inflation caused by soaring energy prices last year. Interest rates have been raised from below zero and are now at the highest level in the central bank's 20-year history.
However, Europe faces a prolonged economic slowdown as high interest rates and the lingering effects of Russia's war in Ukraine continue to suppress economic activity. The eurozone economy grew at an anemic annual rate of just 0.1% between July and September, compared with significantly faster growth in the United States over the same period.
Looking ahead: Talk of lowering euro zone interest rates is increasing
The economic downturn highlights the challenges facing policymakers at the European Central Bank, which last month suspended its interest rate hike campaign amid signs of weakening in the region's economy.
Officials are now focused on how long they need to keep interest rates high to bring inflation down to the central bank's 2% target. Colline said they remain concerned about factors such as wage growth and a surge in the energy market that could put inflation back on an upward trajectory. His bank is among those expecting the ECB to start cutting interest rates next year, perhaps before the summer.
