After months of decline, the rise in consumer prices reached its lowest level in three and a half years in September, at 1.7%, before rising again in October to 2%.
Inflation in the euro zone continued its rebound in December, to 2.4% year-on-year, which could push the European Central Bank (ECB) to be cautious without calling into question its policy of lowering interest rates.
After months of decline, the rise in consumer prices reached its lowest level in three and a half years in September, at 1.7%, before rising again in October to 2%, exactly the target targeted by the ECB.
Fueled by a slight rise in energy prices, it has since returned slightly above this objective in the 20 countries sharing the single currency, increasing by another 0.2 points in October, then in December, a pace in line with the analysts’ expectations, according to figures published Tuesday by Eurostat.
However, underlying inflation – corrected for volatile energy and food prices -, which is a benchmark for the markets and the European Central Bank, has been unchanged since September at 2.7%.
Overall, the rise in prices in the euro zone has calmed very 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.
Christine Lagarde, who chairs the institution based in Frankfurt, also made reassuring remarks by presenting her good wishes for the new year in a video posted on X on January 1.
“Significant progress”
“We have made significant progress in 2024 in reducing inflation and we hope that 2025 will be the year when we will achieve the objective planned and planned in our strategy”, namely the famous target of 2%, maintained Ms. Lagarde.
To stem the rise in prices, the monetary institution had increased borrowing costs at an unprecedented rate from July 2022, at the cost of a sharp slowdown in economic growth.
From now on, it is no longer so much inflation as growth that is worrying, while the euro zone has become mired in stagnation.
Monetary easing should make it possible to revive real estate credit and business loans. There is no indication that it is being called into question, even if Christine Lagarde should move cautiously so as not to fuel a new cycle of price increases.
The recent rebound in inflation “will not prevent the ECB from further reducing its interest rates,” said Jack Allen-Reynolds of Capital Economics.
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 to 4% (+0.1 point compared to the previous month).
But these movements are considered temporary.
The rise in prices of industrial goods also slowed down in December (+0.5% after +0.6%), while that of food products remained stable compared to November, at 2.7% over one year. .
“Inflation in services seems to remain stuck around 4%” which will push ECB officials to act “cautiously”, predicts Jack Allen-Reynolds, who is counting on “reductions in steps of 0.25 points”.
The ECB lowered its key rates by 0.25 points in December, bringing its deposit rate to 3.0%, which serves as a benchmark for credit conditions in the economy.
“As pressures on prices are still present” in the euro zone, “the ECB will act with caution over the coming months,” also believes Charlie Cornes, of the Center for Economics and Business Research (Cebr).
This expert predicts that “the ECB will only cut rates once in the first half of this year”, and that “additional reductions will be concentrated in the second half of 2025”.
