As France and Germany announce rising inflation figures, ECB rate cuts seem increasingly unlikely

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Updated on Jun 6, 2024

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Europe announces its first inflation figures, that of France and Germany, and inflation is rising.
Inflation currently stands at 4.1 percent in France, and 3.7 percent in Germany.
With the new figures, ECB rate cuts in the near future seem increasingly unlikely.

America seems, so far, to have stuck its ‘soft landing’ for 2023 – but the fate of Europe is far less certain.

Investors were reminded of that today, with the YoY inflation rate figures coming out of the two main economies of the European continent: France and Germany.

French inflation up marginally

In France this morning, France reported that, in December 2023, CPI was 4.1 percent higher, up marginally from November’s monthly reading of 3.9 percent.

The reason given for this rise was a higher cost of living after the French government phased out its prior fuel subsidies for French households, which were instituted in the months after Russia invaded Ukraine, causing chaos throughout Europe’s power sector.

German inflation rallies

While Europe’s second-biggest economy showed inflation beginning to climb, its largest economy showed slightly more dire figures.

Germany, reporting its annual and monthly inflation figures this afternoon, had its inflation rate YoY Prel figures at 3.7 percent, 0.5 percent higher than November 2023’s 3.2 percent.

Essentially, this means that inflation bounced back up immediately after rates were held steady in December, climbing almost right back up to the October 2023 figure of 3.8 percent.

What this means for the markets

With inflation rising in Europe’s two biggest economies, its likely the the rest of Europe (due to report their inflation figures tomorrow) will show similar tidings. And those tidings are: if the ECB gives an inch, inflation will likely take a mile.

And if that happens, it means interest rate cuts in the near future are very unlikely to happen for the EU – even if they do happen for the United States.

While this may be unhappy news for the average consumer in Europe, it may bolster the value of the Euro itself if coming interest rate decisions should hold firm and shy away from rate cuts.