On December 29, 2024, a man rode a bicycle on a snow-covered street after snowfall in Frankfurt am Main in western Germany.
Kirill Kudryavtsev | Kirill Kudryavtsev AFP | Getty Images
Eurozone annual inflation rose for the third consecutive month in December to 2.4%, statistics agency Eurostat said on Tuesday.
The preliminary data was in line with forecasts by economists polled by Reuters, rising from a revised 2.2% in 2019. November. Core inflation remained at 2.7% for the fourth consecutive month, in line with economists’ expectations, while services inflation edged up to 4% from 3.9%.
Headline inflation is widely expected to accelerate after hitting a low of 1.7% in September as the underlying effects of lower energy prices fade. The European Central Bank will closely monitor the overall rise in the reading, as well as the persistence of services and core inflation, and is currently expected to make multiple interest rate cuts this year, from 3% to 2%.
Prices in Germany, the euro zone’s largest economy, rose by 2.9% in December, according to data released separately this week. Meanwhile, French inflation was 1.8% last month, lower than the 1.9% forecast in a Reuters analyst survey.
this EUR USD/USD extended early gains, rising 0.37% to $1.0428 at 10:13 a.m. London time. Traders are assessing whether the euro could fall to parity with the dollar this year if the Federal Reserve acts significantly more hawkish than the European Central Bank.
Callanish Capital director Haig Bathgate told CNBC’s “Squawk Box Europe” that ECB policymakers won’t be overly concerned about higher monthly inflation data as long as it is broadly in line with expectations.
“A lot of the data series we’re seeing now are more predictable… the direction of (lower) interest rates in Europe is more predictable than in the UK,” Bathgate said on Tuesday.
Jack Allen-Reynolds, deputy chief euro zone economist at Capital Economics, said that while markets had priced in a rate cut at the start of the year, the stickiness of services sector inflation meant the ECB ” Rate cuts are likely to continue slowly” as the economic outlook remains poor. “
“The most important thing for the monetary policy outlook is that core inflation remained unchanged at 2.7% for the fourth month in a row… This will not prevent the ECB from further cutting interest rates,” Alan Reynolds said in a note .
“Part of the reason for higher inflation in services is a temporary effect that should fade this year. At the same time, the labor market has loosened, wage growth is slowing and the growth outlook is soft.”
The euro zone economy grew 0.4% in the third quarter, but economists warned that political instability, continued weakness in manufacturing and the potential for escalating trade tensions after U.S. President-elect Trump takes office are clouding the outlook for 2025.
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