Inflation in the euro zone is rising again, reaching 2.4% in December. This rebound, supported by a slight increase in energy prices, could slow down the pace of rate cuts initiated by the ECB in 2024. Christine Lagarde calls for a cautious approach, while economic growth remains at a standstill.
After months of respite, inflation in the euro zone is rising again, reaching 2.4% in December, year-on-year. Although this progression remains moderate, it could push the European Central Bank (ECB) to adopt a more measured approach in its monetary policy, without calling into question the planned rate cuts.
A return above the target
Inflation reached a low of 1.7% in September, the lowest level in three and a half years. Since then, consumer prices have started to rise again, driven in particular by a slight increase in energy prices. The increase in prices nevertheless remains in line with analysts’ expectations, according to data published by Eurostat.
However, core inflation, which excludes volatile energy and food prices, has remained stable at 2.7% since September. This figure, closely scrutinized by the markets and the ECB, shows that the inflationary dynamic persists in certain sectors, notably services where prices have increased by 4%.
Caution is advised
Christine Lagarde, President of the ECB, welcomed the progress made in 2024 to control inflation, while calling for vigilance. Recent price increases could slow the pace of rate cuts, which began last June.
The objective remains to maintain a balance between controlling inflation and supporting a stagnant economy. Experts, such as Jack Allen-Reynolds of Capital Economics, estimate that the ECB will continue to lower rates, but in limited steps of 0.25 points.
For his part, Charlie Cornes of Cebr forecasts a single drop in the first half of 2025, with reductions concentrated in the second half of the year.
A delicate economic context
While the rise in energy prices appears temporary, other sectors, such as services, continue to weigh on inflation. Pressures on food prices remain stable at 2.7%, while those of industrial goods show a slight slowdown.
In this context, the ECB lowered its deposit rate to 3% in December, seeking to revive credit and investments without risking a new inflationary cycle. However, with almost zero economic growth and persistent inflationary pressures, the institution will have to tread carefully.
Outlook for 2025
The planned rate cuts should help support demand, particularly through real estate credit and business loans. However, the ECB appears to be moving towards a gradual approach, favoring measured adjustments to avoid any economic imbalance. The coming months will be decisive for adjusting a monetary policy facing multiple challenges.
Sami Nemli with agencies / Les Inspirations ECO
Related News :