Eurozone inflation drops for the first time in 17 months – POLITICO

FRANKFURT — Euro zone inflation rates fell for the first time in 17 months, coming in well below expectations, providing much-needed respite for consumers and businesses in the region and reducing the chances of a fresh giant rise in interest rates.

According to Eurostat data released on Wednesday, inflation slowed to 10.0% in November from a record 10.6% in October. It is significantly lower than the median forecast of 10.4% from a Reuters survey of analysts.

“While inflation is expected to remain elevated, the fact that energy is expected to turn more disinflationary means that today’s data will most likely be followed by a gradual decline in inflation for the Eurozone,” said Oxford Economics economist Nicola Nobile.

The drop in headline inflation this month was mainly due to lower energy prices, down to 34.9% from 41.5% in October. Soaring energy prices remain the main driver of the current high inflation.

So-called core inflation, which excludes the volatile components of energy, food, alcohol and tobacco – and is seen as an indicator of underlying inflation trends – remained unchanged at 5.0%.

Highlighting strong underlying price pressures and « extreme swings in energy prices », Commerzbank economist Christoph Weil said it was too early to say for sure the worst was behind .

European Central Bank President Christine Lagarde said earlier this week that she « would be surprised » if eurozone inflation had peaked, as the previous spike in wholesale energy prices did not not yet fully passed on to consumers. Many households will only see their gas prices change at the beginning of the year.

With core inflation still at more than double the ECB’s 2% inflation target, Governing Council hawks will warn that there is no cause for celebration and , as Isabel Schnabel, member of the executive board, said last week, there is only limited leeway to slow down. the pace of rate increases.

To complicate matters further, inflation levels in the region continue to show an exceptional level of divergence. Inflation rates remain the highest among the Baltic countries, with Latvia posting inflation of 21.7%. The lowest level, 6.6%, was recorded in Spain.

Still, lower-than-expected inflation, coupled with the first signs of falling global inflation, will support the case for the doves of the ECB Governing Council who have argued that it is time to walk away from strong inflation hikes. interest rate. Nobile and Weil said today’s reading raises the odds the Governing Council will opt for a 50 basis point hike rather than a 75 basis point hike in December.

« Tired signs of an inflation spike are growing, evidence of a price-wage spiral continues to be absent and the environment is turning recessive, » said ING economist Carsten Brzeski. “In our view, this should take the ECB from 75 basis point hikes to a smaller 50 basis point hike in December.”

This article has been updated.