A man rides a bicycle on a snowy street after snowfall in Frankfurt am Main, western Germany, December 29, 2024.
Kirill Kudryavtsev | Afp | Getty Images
Annual inflation in the euro zone increased for the third consecutive month to reach 2.4% in December, the statistical agency Eurostat announced on Tuesday.
The preliminary figure is in line with forecasts by economists polled by Reuters and marks an increase from last year’s revised figure of 2.2 percent. November. Core inflation held at 2.7% for a fourth consecutive month, also meeting economists’ expectations, while services inflation rose from 3.9% to 4%.
Headline inflation is widely expected to accelerate after hitting a low of 1.7% in September, as base effects from lower energy prices fade. The extent of the rise in figures – as well as the persistence of services and underlying inflation – will be closely watched by the European Central Bank, which markets currently expect to cut interest rates by 3 % to 2% over several quarters this year.
The pace of price increases in the euro zone’s largest economy, Germany, reached a rate of 2.9% higher than expected in December, according to figures released separately this week. Inflation in France stood at 1.8% last month, below a Reuters poll of analysts forecasting a figure of 1.9%.
THE euro held on to its gains against the U.S. dollar in the early morning after the release, trading up 0.33% at $1.0424 as of 10:43 a.m. in London. Traders are weighing whether the euro could fall to parity with the greenback this year, if the US Federal Reserve proves so. clearly more hawkish than the ECB.
Haig Bathgate, director of Callanish Capital, told CNBC’s “Squawk Box Europe” that ECB policymakers would not be too concerned about a monthly rise in inflation, provided it was broadly in line with expectations. expectations.
“There’s now a lot more predictability in a lot of the data series that we’re looking at…the direction in which rates are moving. [lower] in Europe is much more predictable than in the UK, for example,” Bathgate said on Tuesday.
While markets anticipated rate cuts towards the start of the year, Jack Allen-Reynolds, deputy chief euro zone economist at Capital Economics, said sticky services inflation meant the ECB was “likely to continue reducing interest rates only slowly, even if as the economic outlook remains poor.” »
“Most important for the monetary policy outlook is that core inflation remained unchanged at 2.7% for the fourth consecutive month… This will not prevent the ECB from cutting interest rates further” , Allen-Reynolds said in a note.
“The high level of services inflation is partly due to temporary effects which are expected to fade this year. At the same time, the labor market has relaxed, wage growth is slowing and growth prospects are weak. “
The eurozone economy increased by 0.4% in the third quarterbut economists warn that political instabilitythe persistent weakness of the manufacturing sector and the potential for escalation of trade tensions under the new administration of United States President-elect Donald Trump, have darkened the outlook for 2025.
