Inflation In Europe Was More Or Less On Point

Inflation In Europe Was More Or Less On Point
Paul Allison, CFA

3 months ago2 mins

What’s going on here?

European inflation landed on the European Central Bank’s (ECB) target in November – if you squint a little, that is.

What does this mean?

Prices in Europe were 2.4% higher this November than last, and if you generously round down, that’s pretty much the ECB’s target. What’s more, core inflation – which takes changeable food and energy prices out of the equation – came in well below expectations at 3.6%. But the central bank can’t put its feet up yet: high interest rates squashed inflation, and they could do the same to the economy if left unchecked. So now that prices are roughly where the ECB wants them, investors are expecting interest rates to be cut sooner rather than later.

Europe inflation

Why should I care?

For markets: Move over, ‘Murica.

The US tends to hog the limelight, but Europe deserves to have a moment. The region’s put the shackles on inflation while keeping unemployment down at 6% – about as low as it’s ever been. And while the US government is only adding to its intimidating debts, Europe’s books are relatively in order: US debt is worth over 100% of the country’s economy, while Europe’s ratio is a much more conservative 83%.

Europe debt ratio

Zooming out: Europe’s ready for winter.

Inflation has a habit of finding its second, third, or fourth wind, so Europe isn’t in the clear completely. That said, the region’s covered itself for winter – and not by buying a heated comforter. Europe has weaned itself off Russian gas: just 12% of the region’s imported gas was Russian last quarter, down from 40% before the war in Ukraine. That should make it less vulnerable to supply kinks and, in turn, price flare-ups – a major inflation catalyst. Europe’s gas storage tanks are fuller than the same time last year, too, which will buy it time if any unexpected events put a block on imports.

Europe gas storage
Source: European Gas Hub
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