The Euro Area most likely saw a spike in inflation towards the end of 2023, but policymakers are already prepared to accept this as they veer toward lowering interest rates.
A Bloomberg survey of analysts conducted before last Friday's report showed that, on average, 29 forecasters predicted that consumer prices would rise 3% in December over the previous year, marking the first uptick in eight months.
Although the headline inflation rate may rise in the following week's figures, policymakers can find solace in the ongoing decline in the underlying measure, which eliminates volatile components like energy, that most likely declined to 3.4%.
Source: Eurostat, Bloomberg survey of economists
A more gradual decline may bolster the European Central Bank's position in its current standoff with investors, who have heaped on bets expecting an early shift towards rate reduction in lockstep with the US Federal Reserve.
ECB President Christine Lagarde insisted on December 14th that she and her colleagues “did not discuss rate cuts at all” and warned that they first need to see full data in the coming months on how wages respond to the consumer-price shock.
On December 21st, ECB Vice President Luis de Guindos reiterated that any easing won’t be immediate. “Once we see inflation is clearly converging stably to our target of 2%, monetary policy might then start to ease,” Guindos stated. “But it’s still too early for that to happen.”
It's possible that regional national statistics may continue to exhibit notable variations. For instance, price rises in Slovakia reached 6.9% in November, whereas for Belgium, this figure was negative.
Source: National statistics agencies, Bloomberg survey of economists
December inflation in Spain was 3.3%. In France and Germany, it may reach around 4% on Thursday, marking a significant increase from the 2.3% estimate from the previous month.
Although inflation may remain elevated in the near term, central banks in Spain, France, and Italy all project consumer prices to slow to 2% or even lower in 2025. Germany’s Bundesbank isn’t so optimistic, seeing Europe’s largest economy stuck above the target into 2026, kept higher by wages.
The content published above has been prepared by CFI for informational purposes only and should not be considered as investment advice. Any view expressed does not constitute a personal recommendation or solicitation to buy or sell. The information provided does not have regard to the specific investment objectives, financial situation, and needs of any specific person who may receive it, and is not held out as independent investment research and may have been acted upon by persons connected with CFI. Market data is derived from independent sources believed to be reliable, however, CFl makes no guarantee of its accuracy or completeness, and accepts no responsibility for any consequence of its use by recipients.