It eases inflation in the euro area as a result of lower energy prices

Low energy prices Helped push inflation in Europe lower last month European Commission reported on Friday, but many rates are still rising at a rapid pace and policy makers have given little indication that they plan to halt planned interest rate increases.

Consumer prices in countries that use the euro as their currency rose at an annualized rate of 9.2 percent in December, down from double-digit levels. 10.1 percent in November and 10.6 percent in October.

Declining inflation has raised hopes that the steady rally across the continent may finally have peaked. But several influential voices urged caution, noting that while the so-called headline rate of inflation has eased, core inflation, which excludes volatile food and energy prices, has not shown the same decline. In fact, for the month of December, core inflation in the eurozone rose to 5.2 percent, from 5 percent in the previous month.

Europe benefited from Line of fair weather, which has reduced energy demand, especially the natural gas used to power much of the continent’s heating infrastructure. Many governments have also offered subsidies to reduce the painfully high energy prices paid by consumers. According to the government statistics office, the decline in Germany’s inflation rate, to 9.6% in December from 11.3% in the previous month, was partly due to a one-off aid provided to help households pay energy bills.

The data showed that energy prices in the euro area rose at an annual rate of 25.7 percent in December, down from 41.5 percent in October.

“Europe is very lucky at the moment with the weather,” said Klaus Festsen, chief eurozone economist at Pantheon Macroeconomics. He added that the government’s energy relief had driven “a wedge between reality and data”.

“It controls prices,” he said, “and once you get that out of the way, it’s not clear that inflation is that benign.”

Almost all eurozone countries recorded a decline in their headline inflation rate in December, including France (6.7 percent from 7.1 percent in November), Italy (12.3 percent from 12.6 percent), Spain (5.6 percent from 6.7 percent), and the Netherlands. (11% of 11.3%).

The figures reinforced the argument that last year’s record pace of inflation in the eurozone will slowly lose steam in 2023.

“It is possible that we have passed the peak,” Riccardo Marcelli Fabiani, an economist at Oxford Economics, said in a note on Friday. But he added, “We expect inflation to subside only gradually, and to remain high in the short term.”

The European Central Bank, which targets an annual inflation rate of 2 percent, has already indicated that it is likely to raise interest rates by half a point in February. Christine Lagarde, the bank’s president, said last month that she expected interest rates to rise “much more, because inflation remains very high and is expected to remain above our target for a long time.”

After the figures were released, Vestessen noted that the December data, which shows headline inflation easing while underlying price pressure remains, is likely to fuel “tense negotiations among policymakers in the next few months.”

The Federal Reserve, the US central bank, is also expected to continue raising interest rates.

This week, Gita Gopinath, Senior Deputy Managing Director of the International Monetary Fund, told The International Monetary Fund financial times That the Fed should “stay course” with planned increases.

“I think it’s clear we’re not quite out of the corner on inflation yet,” she said. At the same time, the Fund also predicted that a third of the global economy will face a recession this year.