Eurozone inflation falls to within striking distance of 2% target
Inflation across the eurozone fell by more than expected in November amid growing concerns about national finances after the sharpest rise in borrowing costs since the creation of the single currency.
Consumer prices across the 20-country bloc increased at an annual rate of 2.4%, down from 2.9% in October, according to figures from the EU statistical agency Eurostat. Economists polled by Reuters had forecast a higher reading of 2.7% for November.
Falling energy prices and weaker increases in the cost of buying food, alcohol and tobacco dragged down the headline rate to within striking distance of the European Central Bank’s 2% inflation target, increasing speculation about the timing of interest rate cuts.
In its flash estimate for November, Eurostat figures showed a monthly increase in consumer prices in only two eurozone countries – Austria and Slovakia – amid easing pressure on living standards across the bloc.
Meanwhile, there are concerns about economic growth across the eurozone weakening further as households and businesses come under pressure from high living costs and elevated interest rates.
Updated figures for the French economy on Thursday showed gross domestic product fell by 0.1% in the three months to September – below the 0.1% rise first estimated, and down from a 0.6% expansion in the second quarter.
Germany is expected to be the worst-performing developed country this year, according to forecasts released this week by the Organisation for Economic Cooperation and Development. Europe’s largest economy is on track to shrink by 0.1%, said the OECD.
Economists said cooling inflation and sluggish economic growth across the eurozone could force the ECB to bring forward a cut in interest rates for the first since the central bank’s most aggressive cycle of increases in borrowing costs since the creation of the euro in 1999.
The ECB left its key deposit rate, which is paid on commercial bank deposits, at 4% in October, having lifted borrowing costs from -0.5% four years ago in response to the inflation shock after the Covid pandemic and the surge in energy prices following Russia’s invasion of Ukraine.
On Monday, the ECB president, Christine Lagarde, said now was “not the time to start declaring victory” as the risk of persistent inflationary pressures remained. The central bank expects inflation will return to above 3% next year, before hitting its 2% target in late 2025, partly due to resilience in wage growth.
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Figures on Thursday showed unemployment across the eurozone held steady at a record-low 6.5%, despite the slowdown in economic growth, with joblessness levels in France, Germany and Spain unchanged.
Andrew Kenningham, the chief Europe economist at the consultancy Capital Economics, said it had become “increasingly untenable” for the ECB to claim it was not even thinking about interest rate cuts.
“We are now pencilling in a first cut for next June, rather than September,” he said. “With headline and core inflation likely to trend down in the new year it will hard for the ECB to ignore the extent to which the inflationary tide is turning.”