Inflation in Europe lower than expected, buoying hope of rate cuts

Headline inflation in the Eurozone rose to 2.9 percent month-on-month in December, the European Central Bank (ECB) announced this afternoon.

This is a fairly significant increase from November’s 2.4 percent. It was, however, largely considered to be lower than what analysts were expecting today.

With large economies such as France phasing out its fuel subsidies, the CPI rate – which includes energy prices – was expected to rise.

Crucially, however, Europe’s core inflation rate (which doesn’t include fuel prices) was down 0.2 percent MoM from 3.6 in November to 3.4 in December.

This came just hours after yesterday’s announcements of rising inflation in Germany and France, Europe’s two largest economies.

Hope springs afresh for rate cuts

The better-than-expected news has sparked hope that rate cuts would be in the Eurozone’s near-term future.

After all, this was what ECB president Christine Lagarde said on the matter in December:

Europe continues to toe the line of recession

Economists have been watching the Eurozone closely, since it was reported in late October that the EU’s GDP was down from 0.2 percent in Q2 2023 to 0.1 percent in Q3 2023.

As yet, the EU’s GDP figures for Q4 2023 have not yet been announced. A preliminary flash estimate from the ECB is expected on January 30^th.