Inflation in the euro zone rose in December, marking its first fall in seven months, official figures showed on Friday, with analysts divided over when the European Central Bank would start cutting interest rates.
Consumer prices rose a modest 2.9% last month, in line with Bloomberg analysts' forecasts, down from an annual rate of 2.4% in November 2023.
This is the first rise in annual inflation since an unexpected rise in April last year.
The data supported comments from ECB President Christine Lagarde, who warned that Europe needed to remain cautious despite falling inflation.
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After consumer prices peaked at 10.6% in October 2022, the ECB launched a series of interest rate hikes to curb red-hot inflation.
But as eurozone inflation approaches the ECB's 2% target, calls for interest rate cuts are growing. Bank officials strongly opposed this.
Jack Allen Reynolds said: “The sharp rise in December headline inflation in the euro area is widely expected and is due entirely to higher energy inflation due to base effects, making it difficult for ECB policymakers to comment on the outlook for monetary policy.'' It doesn't change people's views.” Deputy Chief Eurozone Economist at Capital Economics.
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The rise was expected as governments provided extraordinary support to households in December 2022 to help them cope with soaring heating costs after Russia's invasion of Ukraine.
Data released by the EU's official statistics office showed energy prices in the euro zone fell by an annual rate of 6.7% in December, but less than the 11.5% drop in November.
Food and drink price growth slowed to 6.1% last month, compared with 6.9% in November, Eurostat said.
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But core inflation, which subtracts volatile energy, food, alcohol and tobacco prices, slowed to 3.4% in December from 3.6% in November, Eurostat said.
Core inflation is an important signal for the ECB.
ECB President Lagarde insisted it was too early to declare victory over inflation and dismissed any talk of cutting interest rates as “premature”.
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The next interest rate decision meeting will be held on January 25th.
“The rise (in inflation) is a reminder that a rate cut in the first quarter is unlikely, but it does dispel expectations for a rate cut in the second half of the year,” said Bart Collin, senior euro zone economist at ING. Not,” he said.
“We remain firm in our expectation that the first rate cut will occur in June,” he added.
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Capital Economics' Allen Reynolds said he still doubted the ECB would start cutting rates “in April or thereabouts.”
Of the 20 countries using the euro, Belgium and Italy had the lowest inflation rates, reaching 0.5% in December, according to Eurostat.
Inflation rates also rose in the European Union's two largest economies.
In Germany, inflation rose to 3.8% in December from 2.3% the previous month. Consumer prices in France rose to 4.1% in December from 3.9% in November, Eurostat said.
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