Prime Highlights:
Eurozone inflation rose to 2.4% in December, marking a third consecutive monthly increase, in line with economists’ expectations.
Core inflation remained steady at 2.7%, while services inflation nudged up to 4% from 3.9%.
The European Central Bank (ECB) is expected to continue interest rate cuts despite persistent inflation, with rates potentially dropping from 3% to 2% this year.
Key Background:
Eurozone inflation reached 2.4% in December, marking a third consecutive monthly increase, according to the latest data from the European statistics agency, Eurostat. This preliminary figure was in line with economists’ expectations and reflected an uptick from November’s revised inflation rate of 2.2%.
Core inflation, which excludes volatile energy and food prices, remained steady at 2.7% for the fourth consecutive month. Services inflation rose marginally to 4% from 3.9% the previous month. The rise in inflation was anticipated due to the fading impact of lower energy prices, a factor that had subdued inflation in the prior months.
The European Central Bank (ECB) will closely monitor these inflation figures, particularly the persistence of core and services inflation. Despite the upward trend, economists suggest the ECB may continue its interest rate cuts in the upcoming year. Jack Allen-Reynolds, deputy chief euro zone economist at Capital Economics, noted that the high level of services inflation is partly due to temporary factors that are expected to ease. However, he emphasized that the ECB is likely to maintain a gradual pace in rate cuts, as the economic outlook remains weak.
Notably, inflation in Germany exceeded expectations, reaching 2.9% in December, while France saw a more moderate 1.8% inflation rate. These variations highlight differing inflationary pressures across the eurozone’s largest economies.
The euro gained 0.33% against the U.S. dollar following the release of the inflation data, trading at $1.0424. Traders are now focused on whether the euro will approach parity with the U.S. dollar, contingent on the Federal Reserve’s stance on interest rates compared to the ECB’s policies. As the eurozone grapples with a slowing economy, political uncertainty, and trade tensions, analysts continue to weigh the potential economic challenges that could shape the region’s monetary policy in 2025.
