The rate fell in December to 9.2%, almost one point since November, with Spain registering the best data in the euro group
The eurozone inflation rate fell in December to 9.2%, almost one point from 10.1% in November, thanks largely to the continued slowdown in energy prices across Europe. The Eurostat data published this Friday confirm that the price record for the euro countries was touched in October, when the rate reached 10.6% after a year and a half of uninterrupted rises.
Energy cost 25.7% more in December than a year earlier, but it is down significantly from the 34.9% marked in November. The problem now is the increase in food prices, which continues to rise, registering 13.8% year-on-year compared to 13.6% the previous month. The countries that marked a higher inflation rate were Latvia (20.7%), Lithuania (20%) and Estonia (17.5%), even so with lower rates than those of previous months.
Among the European powers, the data for Italy (12.3%) and Germany (9.3%) stands out, compared to the records of France (6.7%) and especially Spain (5.6%), which achieves the best inflation data in the eurozone for yet another month. The inflation data for the eurozone doubles that of Spain.
Possible ECB moderation
This moderation in prices -although still at very high levels- will lead to lessening the pressure on the European Central Bank (ECB) in the coming days, those prior to the meeting that the institution chaired by Christine Lagarde will hold on February 2 to decide What does it do with interest rates? In the previous one, Frankfurt already warned that it will continue to increase the official price of money in the euro zone as much as necessary. Lagarde herself has already spoken of taking them to covertly taking them to “restrictive” levels.
All the analysis houses agreed that after raising rates to 2.5% in December, the ECB would undertake two more increases in this first tranche of 2023: 0.5 points in January or February and another 0.5 in March. In other words, boost them to 3.5%, a level that the European economy has not seen since 2008, at the beginning of the great financial and sovereign debt recession.
However, the ECB can take its foot off the gas. Not in the short term, by no means. This is how Manuel Pinto, an analyst at XTB, estimates it, who recalls that inflation “is still very high.” And that, therefore, “will continue to fight raising rates, although possibly less aggressively” compared to what the central bank had thought up to now.
Pinto believes that prices above 5% or 6% are “too high” for an economy like the euro zone, whose target is 2%. In addition, he points out that any decision taken by the ECB “will be based on the guidance exercised by Germany. This expert points out that “as we see inflation slow down, central banks should slow down rate hikes.”
There is a key thermometer to determine which way to go: the Euribor. And, for now, the mortgage indicator has not shown signs of stability. Quite the contrary. The interbank rate is above 3.3% after closing December below 3%. By acting as a preview of what the official price of money will do, at 2.5%, there is still room for the ECB to continue raising it until it reaches around 3.5% and even 4%, in which it is considered that the Euribor can end during this exercise.
Food recorded its record in 2022
Rate hikes will be determined in any case by inflation, which, although it is easing, has no sign of falling drastically, mainly due to the fact that food prices remain very high. Globally, a report published yesterday by the FAO (UN Food Organization) revealed that food fell in December but in 2022 they marked their highest rate in the historical series, rising 14%.
The decline in the index in December was driven by a sharp decline in the international price of vegetable oils, along with some declines in cereals and meat, but mitigated by increases in those of sugar and dairy products, says the FAO, which notes because food skyrocketed at the start of the invasion of Ukraine due to fears of supply disruptions.
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