Euro zone inflation eases to 2.4% in November, core inflation drops to 3.6%
A view of a crowd at the Aachen Christmas market in Germany. Photo by Ying Tang/NurPhoto via Getty Images
Annual inflation in the euro zone dropped to 2.4% in November from 2.9% in October, according to flash figures released on Thursday. Economists had expected a reading of 2.7%, marking a significant dip from the previous month.
Core inflation, which is closely monitored by the European Central Bank (ECB) and excludes the volatile effects of energy, food, alcohol, and tobacco, also came in lower than expected at 3.6%, down from 4.2% in October.
Energy prices continued to experience significant year-on-year declines, coming in at -11.5% in November, while food, alcohol, and tobacco contributed to the upward trend, registering at 6.9%.
The drop in headline inflation marks a significant cooling from the peak levels of 10.6% in October 2022. In the euro zone’s largest economies, Germany and France, inflation dropped to 2.3% and 3.8% respectively.
Despite the drop in inflation, ECB officials have cautioned against declaring victory over price rises, as they continue to monitor potential pressures from wage increases and energy markets.
Mathieu Savary, chief European strategist at BCA Research, suggested that traders may be tempted to adjust their expectations for the timeline of the first ECB rate cut, but emphasized that the central bank’s concerns about labor market tightness imply “later rather than sooner rate cuts.”
Separate data released by statistics agency Eurostat showed that unemployment in the euro area remained at a record low of 6.5% in October, despite a contraction in the euro zone economy in the third quarter.
Bert Colijn, senior euro zone economist at ING, noted that signs of an imminent victory on inflation are mounting and stated that the market is right to start looking at rate cuts for 2024.
“We think the first one could well happen before the summer,” Colijn added, implying that the impact from existing monetary tightening is yet to be fully felt.
In conclusion, the drop in inflation and the ongoing record low unemployment in the euro zone seem to be signaling potential changes in ECB policy in the near future, as policymakers continue to monitor economic developments in the region.
