Euro Area: Inflation rises less than expected in December
Harmonized inflation rose to 2.9% in December from 2.4% in November. The print surprised markets on the downside. Therefore, inflation moved away from the European Central Bank’s target rate of 2.0%.
December saw a softer decrease in prices for energy. However, prices for non-energy industrial goods and food, alcohol and tobacco increased at slower paces. Lastly, prices for services rose at the same clip as in the previous month. Meanwhile, the annual rate of core inflation—which excludes volatile energy and unprocessed food prices—declined to 3.9% in December from November’s 4.2%.
On a monthly basis, harmonized consumer prices increased 0.16% in December, swinging from November’s 0.55% decrease.
Commenting on the impact of the latest inflation reading on the future course of monetary policy, Bert Colijn, senior economist at ING, stated:
“The inflation rate went up from 2.4 to 2.9%, mainly due to fading energy base effects. The increase 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. We stick to our expectation of a first cut in June.”