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Eurozone inflation rose to 2.9% in December, reversing six consecutive months of decline and raising questions about how soon the European Central Bank will start cutting interest rates.
Annual consumer price inflation in 20 euro member countries rose in December from 2.4% in the previous month, the lowest in more than two years, but was slightly below the 3% forecast by economists polled by Reuters. It went below. poll.
Cuts in government subsidies for gas, electricity and food that began last year caused annual inflation to reaccelerate in many parts of Europe. This has led investors to reduce expectations that the ECB will start cutting interest rates as early as March, halting the recent rally in bond markets.
However, most economists believe that inflation in the euro area will soon start falling again. Capital Economics' Jack Allen Reynolds predicted that the rise in price pressure in December would be “brief” and “reverse in January due to further declines in food and core inflation.”
Core inflation, which excludes volatile energy and food prices to better capture underlying price pressures, slowed to 3.4% in December from 3.6% in November. Services inflation, which is closely tracked by the ECB to see the impact of wage increases, was flat at 4%.
The ECB, which is scheduled to meet to discuss monetary policy on January 25, last month put inflation on track to reach an annual rate of 2.2%, contrary to investor expectations that a rate cut was imminent. He said he would like to see signs that wage pressures are easing. cent goal.
Eurozone government bond markets continued their modest decline following Friday's data. The yield on German two-year bonds, which is sensitive to interest rates, rose 0.08 percentage points to 2.62%. When bond prices fall, yields rise.
“Several new inflation concerns are emerging, including disruptions to shipping in the Red Sea after attacks by Houthi militants and the swift withdrawal of German government subsidies,” said Bart Collin, an economist at Dutch bank ING. ” he said. However, he added that the underlying trend in inflation remains “relatively benign” and expects inflation to fall to the ECB's 2% target by the end of this year.
December's rise in inflation reflected comparisons with a year earlier, when several governments, including Germany and France, offered large subsidies for gas, electricity and food that they later began withdrawing.
Reflecting this change, energy prices fell by 6.7% across the euro area in December, compared with an annual decline of 11.5% in the previous month, according to Eurostat's harmonized index of consumer prices published on Friday.
Fresh food prices accelerated by 6.7% from the previous month's 6.3% rise. However, goods inflation slowed to 2.5%, and price increases for processed food, alcohol and tobacco also slowed to 5.9%.
Sylvia Ardanha, an economist at Barclays, said the fact that consumer prices rose only 0.2% month-on-month showed the ECB was still on track to meet its target in the near future. said.
“These numbers should continue to provide reassurance to the ECB that its restrictive monetary policy stance is being strongly communicated,” he said, predicting a rate cut in April.
