San Francisco Frontiers - Eurozone inflation rises in December

Consumer prices edged up to 2.9 percent last month from the 2.4 percent annual rate in November 2023, in line with expectations by analysts for Bloomberg.

It is the first rise in the annual rate of inflation since an unexpected increase in April last year.

The data supports comments by ECB chief Christine Lagarde, who has warned that Europe must remain on guard despite falling inflation.

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

But as eurozone inflation edged closer to the ECB's two-percent target, there have been growing calls to cut rates. Bank officials have pushed back hard against this.

"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 governments had provided exceptional support in December 2022 to households to confront heating bills that had surged after 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 to 6.1 percent last month compared with 6.9 percent in November, according to Eurostat.

- Rate cuts still expected -

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 dismissed any talk about interest rate cuts as "premature".

The next rate decision meeting will be on January 25.

"The increase (in inflation) serves as a reminder that interest rate cuts in the first quarter are unlikely but this shouldn't dispel expectations of cuts later in the year," said Bert Colijn, senior eurozone economist at ING.

"We stick to our expectation of a first cut in June," he added.

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.

F.Edwards--SFF