Eurozone inflation drops as ECB plans rate hikes

For the first in almost one and half years, Euro-zone inflation has declined, giving the European Central Bank (ECB) some hope in the fight against record inflation. Eurostat indicated that the November reading was 10% below the median estimate of 10.4% by Bloomberg surveyed economists.

The November reading was a decrease from the October reading of 10.6%, which was the largest since 2020, attributed to slow services and energy cost advances despite food prices growing rapidly.

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Latest data to help ECB on the decision about an interest rate hike

ECB executives have emphasized that the data will be crucial in deciding interest rates increase up 75 basis points for the third time in a row, a scenario that could now be less likely. At their penultimate meeting before the December 15 decision, slated for this Wednesday, policymakers are anticipated to review the report.

By year’s end, the currency markets are projecting rate increases of approximately 57 basis points. Following Wednesday’s announcement, European bonds continued to decline, with two-year German rates rising six basis points to 2.17%.

Even though there is only one month’s worth of figures, the ECB would feel relieved following nearly a year of frustrating data consistently exceeding economist expectations.

Bloomberg senior economist Maeva Cousin said,

This will be welcome news for the ECB and reinforces our view that the pace of rate hikes will slow in December to 50 basis points from 75. Any sense of relief will be tempered by the fact that underlying pressures remain way too strong.

Inflation remained in double digits for the second consecutive month

For a second month running, Eurozone inflation remained in double digits, with officials seeking to warn against potential false dawns. On Monday, ECB President Christine Lagarde said it would be surprising if price growth peaked.

Early this month, Lagarde’s deputy, Luis de Guindos, bemoaned bad surprises and said that underlying inflation is a signal that they should monitor. Guindos might have been referring to core measures that eliminate volatile elements like energy and food.

The latest data will help ECB in measuring price pressures and as an input to fresh quarterly projections. Since July, policymakers have raised rates by 200 basis points and now have to decide whether another 75 basis points increase is necessary.