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Eurozone inflation jumps in December to 2.9%, dampening calls for interest rate cuts

Consumer prices reached a peak of 10.6 percent in October 2022.

THE ANNUAL RATE of inflation in the eurozone rose to 2.9 percent in December mainly due to energy costs, the EU’s statistics agency said today.

Consumer prices edged up from 2.4 percent in November 2023, in line with expectations by analysts for Bloomberg predicting inflation would increase to 2.9 percent.

The data supports comments by European Central Bank (ECB) chief Christine Lagarde, who has warned that Europe should remain on guard despite falling inflation.

The ECB has undertaken a series of interest rate hikes to tame red-hot inflation after consumer prices reached a peak of 10.6 percent in October 2022.

Talks of rate cuts ‘premature’

But as eurozone inflation edged closer to the ECB’s two-percent target, there have been growing calls to cut rates, which the bank’s officials have pushed hard against.

“December’s jump in headline inflation in the eurozone was widely anticipated and entirely due to a base-effects driven increase in energy inflation, so it won’t alter ECB policymakers’ views on the outlook for monetary policy,” said Jack Allen-Reynolds, deputy chief eurozone economist at Capital Economics.

The rise had been expected because of governments had provided exceptional support in December 2022 to households to confront heating bills that had surged due to  Russia’s invasion of Ukraine.

Energy prices in the eurozone fell in December, by 6.7 percent on an annual measure, but that was less than the 11.5 percent drop in November, data published by the EU’s official statistics agency showed.

Food and drink price increases slowed down to 6.1 percent last month compared with 6.9 percent in November, according to Eurostat.

Core inflation, which strips out volatile energy, food, alcohol and tobacco prices, however slowed to 3.4 percent in December from 3.6 percent in November, Eurostat said.

Core inflation is the key signal for the ECB.

The ECB’s Lagarde has insisted that it is too early to declare victory over inflation and has previously dismissed any talk about interest rate cuts as “premature”.

The next rate decision meeting will be on January 25.

Allen-Reynolds of Capital Economics said he still suspected the ECB would start cutting rates “in or around April”.

Among the 20 countries that use the euro, Belgium and Italy had the lowest inflation rate, reaching 0.5 percent in December, Eurostat said.

Inflation also rose in the European Union’s two biggest economies.

In Germany, inflation increased to 3.8 percent in December from 2.3 percent the previous month. And in France, consumer prices ticked up to 4.1 percent in December from 3.9 percent in November, Eurostat said.

raz/del/rl

© Agence France-Presse

Additional reporting by Jane Matthews

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    Mute Robert Halvey
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    Jan 5th 2024, 12:07 PM

    What a financial system we have , For over 12 years , providing cheap money to the 1% who possess more 50% of the worlds wealth, And the hike interest rates so the 1% can earn on there huge deposits and buy up all the the property that is repossessed ,

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    Mute Kevin Collins
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    Jan 5th 2024, 12:44 PM

    @Robert Halvey: Wealthy people don’t keep large amounts of money on deposit, because when inflation rates are greater than deposit interest rates, the real return is negative. There hasn’t been a noticeable increase in property defaults or repossessions yet either.

    In any case, global wealth inequality is the result of many things, and I would argue that fiscal policy has had played a far greater role than monetary policy.

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    Mute Dave c
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    Jan 5th 2024, 12:59 PM

    @Robert Halvey: you know if you earn more than 40k you are in the 1%.

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    Mute another one? what's going on is the semi state sec
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    Jan 5th 2024, 1:14 PM

    @Dave c: well that’s not true. The MEDIAN salary is around 45k

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    Mute Paul Fahey
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    Jan 5th 2024, 1:33 PM

    @another one? what’s going on is the semi state sec: median salary where? You are aware there is a world outside of Ireland?

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    Jan 5th 2024, 6:17 PM

    @Paul Fahey: Wow…….. Here obviously. More specifically, just for you so there’s no ambiguity, here in Ireland. Sorry, not just Ireland. The Republic of Ireland…… Happy?

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    Jan 5th 2024, 6:59 PM

    @Paul Fahey: I googled it for you……. “If you earn $60,000 a year after tax and you don’t have kids, you’re in the richest 1 percent of the world’s population”…….. To be in the top 1% in Ireland is a salary around €200,000+ per year….. The OP that I replied to said a salary of 40k is in the top 1%. Whether they meant Ireland or they meant the world they’re waaaaayyy off the mark.

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    Mute Paul Fahey
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    Jan 5th 2024, 10:06 PM

    @another one? what’s going on is the semi state sec: he didn’t say Ireland though did he, global 1%. Happily I am in the 1%.

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    Jan 5th 2024, 10:38 PM

    @Paul Fahey: Fella I replied to didn’t specify. And as I pointed out he was far off both counts….. Bragging your financial status on the journal?!?! Fairly sad. Sleep sound knowing nobody cares!

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    Mute Padraig O'Brien
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    Jan 5th 2024, 12:38 PM

    Any excuse for the “haves” to tighten the screws on the “have nots”.

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    Mute Spartacus Ireland
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    Jan 5th 2024, 1:02 PM

    These finance people really can’t predict anything!!!…it’s too complex and they have no control…but they amuse themselves and frustrate us by pretending they have control and know how to fix things…a bit like the climatologists I reckon…

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    Mute Tom Newell
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    Jan 5th 2024, 12:01 PM

    Its gonna be a bumpy first few months of 2024 for a lot of people.

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    Mute Laois Weather
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    Jan 5th 2024, 12:56 PM

    @Tom Newell: Indeed, all this talk of ‘the rate of inflation is falling’ as if it were something to be celebrated is a downright insult. In the real world it means prices are still rising just in smaller amounts. We need to see prices drop! The government though don’t want this as it means their % take drops too and they have less to squander.

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    Mute Daniel Roche
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    Jan 6th 2024, 6:02 PM

    @Laois Weather: And that makes sense in for head.

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