Europe Economy

Euro zone inflation rebounds in December, fueling rate-cut debates

Key Points
  • Inflation in the euro zone climbed to 2.9% in December, up from 2.4%. Economists expected a reading of 3%.
  • However, core inflation — which doesn't include energy, food, alcohol and tobacco prices — cooled last month.
  • An overall rise was expected due to base effects from the energy market, as price falls moderate.
Shoppers at delicatessen market stall in Milan, Italy, on Thursday, Dec. 28, 2023.
Bloomberg | Bloomberg | Getty Images

Headline inflation in the euro zone jumped to 2.9% in December, up from 2.4% the previous month, though core inflation continued to ease, according to data released Friday by Eurostat.

The annual print was a little lower than the 3% forecast in a Reuters poll of economists.

Core inflation — which doesn't include energy, food, alcohol and tobacco prices — cooled to 3.4% last month from 3.6% in November.

An overall rise was expected due to base effects from the energy market, as price falls moderate. Energy prices were down 6.7% year on year in December, versus a 11.5% drop in November.

Friday's data will add to the debate over the trajectory of the European Central Bank's policymaking, with markets expecting rate cuts to begin before the summer.

The headline inflation rise "is essentially a technicality," Michael Field, European market strategist at Morningstar, said in a note.

"Oil prices fell massively from their 2022 highs, but in December the caps that many European governments had placed on energy prices ran out, meaning the prices consumers paid went up, which has impacted inflation," Field said.

Central bankers were aware this spike could be coming and so it is unlikely to impact their decision-making, Field said, adding that January's print will be crucial to see if the downward trend resumes.