A man rides a bicycle on a snow-covered road after a snowfall in Frankfurt am Main, western Germany, on December 29, 2024.
Kirill Kudryavtsev | AFP | Getty Images
Statistics agency Eurostat said on Tuesday that the euro zone’s annual inflation rate rose for the third consecutive month, reaching 2.4% in December.
The preliminary figure was in line with economists’ forecasts polled by Reuters and was up from a revised 2.2% in November. Core inflation remained at 2.7% for the fourth straight month, also in line with economists’ expectations, while services inflation rose to 4% from 3.9%.
Headline inflation was widely expected to accelerate after hitting a low of 1.7% in September as the underlying effects of lower energy prices wear off. With services and core inflation continuing, the full extent of the index’s rise will be closely monitored by the European Central Bank, but the market currently expects several rate cuts this year to reduce interest rates from 3% to 2%. are.
Inflation in Germany, the eurozone’s largest economy, rose faster than expected at 2.9% in December, according to figures released separately this week. Meanwhile, France’s inflation rate was 1.8% last month, lower than the 1.9% expected in a Reuters survey.
of EUR The stock rose against the dollar in the morning following the news, and was trading 0.33% higher at $1.0424 as of 10:43 a.m. in London. Traders are assessing whether the euro could fall to parity with the dollar this year if the US Federal Reserve turns out to be significantly more hawkish than the ECB.
Haig Bathgate, a director at Callanish Capital, told CNBC’s “Squawk Box Europe” that ECB policymakers believe that as long as monthly inflation is broadly in line with expectations, He said he was not overly concerned about the rise in prices.
Mr Bathgate said on Tuesday: “A lot of the data we’re seeing is becoming quite predictable. The direction of interest rates in Europe is much more predictable than, for example, in the UK.” said.
Markets are pricing in interest rate cuts ahead of schedule for the start of the year, but Jack Allen Reynolds, deputy chief euro area economist at Capital Economics, said the persistence of services inflation makes it unlikely that the ECB will continue to cut rates. Very low.” This is because the economic outlook remains poor. ”
“Most important for the outlook for monetary policy is that core inflation has remained flat at 2.7% for the fourth month in a row…This does not stop the ECB from further rate cuts,” Allen Reynolds said in a note. said.
“High services inflation may have a temporary effect, but it should fade this year. Meanwhile, the labor market is loosening, wage growth is slowing, and the growth outlook is weak.”
The euro zone economy grew by 0.4% in the third quarter, but economists said political instability, a continued slump in manufacturing and the possibility of escalating trade tensions under President-elect Donald Trump’s administration weighed on economists. It warns that the outlook for 2025 is clouded.
