Slight relief in Europe. Inflation in the euro zone increased a little less than expected in November, to 2.2% over one year, after 2% in October, announced Eurostat, in a second estimate published this Wednesday, December 18. In its first assessment revealed on November 29, the European Statistics Office reported an increase in consumer prices of 2.3% in the 20 countries sharing the single currency.
In November, inflation continued its rebound, which began in October, due to a smaller decline in energy prices. As a reminder, in September it reached its lowest point in three and a half years, at 1.7%, before rising to 2% in October, the objective set by the ECB. Underlying inflation – corrected for volatile energy and food prices -, which is a benchmark for the markets and central bankers, has been stable since September, at 2.7%.
The ECB lowers its rates again… still with caution
Monetary policy relaxed
Furthermore, this development does not modify the general trend of a moderation in consumer prices which should allow the European Central Bank (ECB) to continue lowering interest rates.
“If the data coming in continues to confirm our base scenario”which forecasts a return of inflation to the target of 2% during 2025, then “the direction is clear: we plan to lower interest rates further”declared Christine Lagarde on Monday during a speech in Lithuania, in Vilnius.
To date, monetary policy “remains restrictive”which means that the still high cost of money penalizes the economy, she had previously underlined. And this, although the ECB lowered its reference rate last Thursday for the fourth time since June, bringing it to 3%, after it reached its historic high of 4% in 2023.
Rate cuts: why the Fed is moving forward in the fog
But the ECB can afford to relax its monetary policy, because the environment in the euro zone has changed radically since the inflation peak of more than 10% observed in the fall of 2022. Two years later, the concern is growing. more on “weaker than expected growth prospects and increased uncertainty linked to geopolitical events”declared the president of the institution. “Increasing geopolitical uncertainty could create new shocks to household sentiment”which would slow down consumption, according to her. Especially, “If the United States – our largest export market – adopts a protectionist policy, growth in the eurozone risks suffering”she added.
For their part, the markets anticipate that the ECB will make several further rate cuts in 2025 to bring the reference rate to around 2%, i.e. a so-called neutral level which neither penalizes nor supports the economy. The ECB has put its communication in tune with the markets: it now says that rates no longer need to remain “sufficiently restrictive for as long as necessary”a formula used since 2022 in a context of high inflation and uncertainty about its future trajectory. According to the new formula inaugurated during its meeting on Thursday, the institution is confident about a return « durable » of inflation in the highlights of his mandate and plans a policy “appropriate” on rates, based on economic data.
(With AFP)
Related News :