Falling Energy Prices Take Some Heat Out Of Eurozone Inflation

Falling Energy Prices Take Some Heat Out Of Eurozone Inflation
Luke Suddards

over 1 year ago1 min

Inflation eased – somewhat at least – across the eurozone in November, with overall prices rising 10% on an annual basis, compared to the 10.6% rise seen in October. Falling energy prices were responsible for the bulk of the slowdown, but food price growth actually accelerated. The data, which tracks price increases across the 19-country eurozone, follows softer inflation results from the likes of Germany and Spain. Although it offers a glimmer of hope, it’s only one month of inflation data and not a trend, so it’s not likely to be enough to shift the stance of the European Central Bank (ECB), which has been raising interest rates in an attempt to cool inflation.

The consumer price index’s “core” inflation measure for the eurozone, the one that excludes the prices of more volatile items like food and energy, meanwhile, held steady in November at a 5% annual rate. And that further suggests that aside from energy – inflation is still an issue for most everything else.

The bloc-wide inflation measure is still eight percentage points above the ECB’s 2% long-term target, and hotter than the 7.7% inflation rate the US is seeing. Investors widely expect the ECB to hike the key rate at its December 15th meeting: the question is by how much. They’re pricing in a 56% probability for a 0.5 percentage point increase and 46% for a 0.75 percentage point move.

Market reaction to the inflation news was muted: with the euro, the DAX index, and the Euro Stoxx 50 index largely holding steady, likely as investors await further news from the Federal Reserve chair’s speech later in the day and monthly US jobs data due out on Friday.

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