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Cost of Living

Eurozone inflation jumps in December to 2.9%, dampening calls for interest rate cuts

Consumer prices reached a peak of 10.6 percent in October 2022.

THE ANNUAL RATE of inflation in the eurozone rose to 2.9 percent in December mainly due to energy costs, the EU’s statistics agency said today.

Consumer prices edged up from 2.4 percent in November 2023, in line with expectations by analysts for Bloomberg predicting inflation would increase to 2.9 percent.

The data supports comments by European Central Bank (ECB) chief Christine Lagarde, who has warned that Europe should remain on guard despite falling inflation.

The ECB has undertaken a series of interest rate hikes to tame red-hot inflation after consumer prices reached a peak of 10.6 percent in October 2022.

Talks of rate cuts ‘premature’

But as eurozone inflation edged closer to the ECB’s two-percent target, there have been growing calls to cut rates, which the bank’s officials have pushed hard against.

“December’s jump in headline inflation in the eurozone was widely anticipated and entirely due to a base-effects driven increase in energy inflation, so it won’t alter ECB policymakers’ views on the outlook for monetary policy,” said Jack Allen-Reynolds, deputy chief eurozone economist at Capital Economics.

The rise had been expected because of governments had provided exceptional support in December 2022 to households to confront heating bills that had surged due to  Russia’s invasion of Ukraine.

Energy prices in the eurozone fell in December, by 6.7 percent on an annual measure, but that was less than the 11.5 percent drop in November, data published by the EU’s official statistics agency showed.

Food and drink price increases slowed down to 6.1 percent last month compared with 6.9 percent in November, according to Eurostat.

Core inflation, which strips out volatile energy, food, alcohol and tobacco prices, however slowed to 3.4 percent in December from 3.6 percent in November, Eurostat said.

Core inflation is the key signal for the ECB.

The ECB’s Lagarde has insisted that it is too early to declare victory over inflation and has previously dismissed any talk about interest rate cuts as “premature”.

The next rate decision meeting will be on January 25.

Allen-Reynolds of Capital Economics said he still suspected the ECB would start cutting rates “in or around April”.

Among the 20 countries that use the euro, Belgium and Italy had the lowest inflation rate, reaching 0.5 percent in December, Eurostat said.

Inflation also rose in the European Union’s two biggest economies.

In Germany, inflation increased to 3.8 percent in December from 2.3 percent the previous month. And in France, consumer prices ticked up to 4.1 percent in December from 3.9 percent in November, Eurostat said.


© Agence France-Presse

Additional reporting by Jane Matthews

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