inflation continues its rebound in December

After months of decline, consumer prices are starting to rise again in the euro zone. Inflation increased by 0.2 points in December, to 2.4% over one year, Eurostat announced on Tuesday. A rate which remains in line with analysts’ expectations.

As a reminder, inflation reached its lowest level in three and a half years in September, at 1.7%, before rising in October to 2%, exactly the target targeted by the European Central Bank (ECB). Since then, it has returned slightly above this objective in the 20 countries sharing the single currency.

However, core inflation – corrected for volatile energy and food prices -, which is a benchmark for the markets and the ECB, remained stable at 2.7% and has been unchanged since September.

The overall increase in consumer prices in December is essentially the result of an increase of 0.1% year-on-year in energy prices, whereas they had fallen by 2% in November. Sectoral inflation in services accelerated slightly in December to 4% (+0.1 point compared to the previous month).

On the other hand, the rise in prices of industrial goods slowed (+0.5% after +0.6%) while that of food products remained stable compared to November at 2.7% over one year.

Nevertheless, the rise in consumer prices in the euro zone has, overall, slowed down significantly since the record of 10.6% over one year reached in October 2022, when energy prices were soaring in the context of the war in Ukraine.

This trend has allowed the ECB to lower its interest rates four times since June, the last of which was on December 12. The ECB had reduced its main key rate to 3%, a reduction of 0.25 points.

This cycle follows a period of drastic monetary tightening to deal with high inflation, linked to the war in Ukraine and the post-Covid recovery. The monetary institution had increased borrowing costs at an unprecedented rate from July 2022, at the cost of a sharp slowdown in economic growth. Indeed, it is no longer so much inflation as growth that worries, while the euro zone has become mired in stagnation.

The next ECB monetary policy meeting is scheduled for January 30 in Frankfurt. The governor of the Bank of France, François Villeroy de Galhau, declared in December that there would be “more rate cuts to come next year”. “Others, plural”he clarified, without wanting to give more details: “We are not committed in advance to a rate trajectory”.