What's happening in Germany, France and Spain: The impact of Europe's largest economies.
In Germany, the annual inflation rate rose to 3.8% from 2.3% in November. However, this increase was smaller than expected and was driven by special statistical factors. Energy costs in the second half of 2022 were pushed to particularly low levels by lump-sum payments to households.
Economists expect Germany's economic growth to be minimal this year as consumers hold back on spending and exports will be hit by uncertainty in global markets.
In France, government support for energy costs was cut off, and consumer prices rose to 4.1% from 3.9% in November.
Italy's price increase rate fell slightly to 0.5%. Spain reported last week that consumer price inflation remained steady at 3.3% in December.
Easing overall inflation: Food prices are the main driver of price increases, but the pace continues to slow.
Energy prices in the euro area have fallen 6.7% since December last year, when they soared at an annual rate of 25.5%. Food prices are the main driver of inflation, with food, alcohol and tobacco rising 6.1% in December, but they have also fallen in recent months.
So-called core inflation, which excludes food and energy prices, slowed for the fifth consecutive month to 3.4% in December from 3.6% the previous month. This number is important to policymakers because it reflects underlying trends.
Analysts said consumer demand remained weak and product inventories remained high. These two factors are helping to ease pressure on prices.
“Overall, the inflation outlook remains very positive, and we expect eurozone inflation to be around 2% again by the end of the year,” said Bart Koline, senior economist at ING Bank.
For the future: The European Central Bank remains cautious.
Friday's report was in line with European Central Bank expectations. Central bank President Christine Lagarde said last month that policymakers expect inflation to rise briefly and then ease again, reaching the central bank's 2% inflation target in 2025.
The bank's policymakers are trying to convince investors that they will not cut rates until they are confident that inflation will not spike again. But traders expect the European Central Bank to cut interest rates in the first half of next year.
