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Eurozone inflation rose to 2.3 per cent in November, exceeding the European Central Bank’s target for the first time in three months.
Friday’s rise in consumer prices was in line with economists’ expectations and surpassed October’s figure of 2 per cent, which matched the ECB’s official medium-term target.
Economists said the increase was not principally caused by underlying price pressures and is unlikely to dissuade the ECB from cutting rates again in December.
Instead, the rise to 2.3 per cent was largely because of so-called base effects, since energy prices fell a year ago, the point of comparison when calculating annual inflation.
Investors expect the ECB will lower borrowing costs by a quarter-point to 3 per cent at its next policy meeting on December 12, according to data from interest rate swaps markets.
Tomasz Wieladek, an economist at T Rowe Price, said underlying inflation trends were likely to be weaker than the latest inflation figures indicated, in particular in services.
He pointed to an ECB measure of services inflation, also out Friday, which showed a month-on-month decline of -0.07 per cent in November. “[This is] the weakest November seasonally adjusted services inflation print on record,” he said.
“[Recent data] will allow the ECB to pivot towards [a] more dovish policy at the December meeting,” Wieladek said.
In September, inflation fell below the 2 per cent target for the first time in more than three years.
Ulrike Kastens, economist at DWS, said the overall inflation trend at the moment was “more benign than expected”.
In the latest Eurostat figures, annual services inflation, which rate-setters are watching closely for clues on how sticky price pressure will prove, edged down from 4 per cent to 3.9 per cent.
Core inflation, which excludes changes in the cost of food and energy and is seen as a better gauge of underlying price trends, remained at 2.7 per cent.
“The stickiness of service price inflation, still strong wage growth and the recent depreciation of the euro suggest that the ECB is likely to continue with its gradual approach to monetary policy easing in December,” said Diego Iscaro, an economist at S&P Global Market Intelligence.
Sven Jari Stehn, economist at Goldman Sachs, on Friday predicted that annual inflation will rise to 2.4 per cent in December and fall afterwards. “We then see core inflation gradually converging to 2 per cent over the course of 2025,” he said.
While a quarter-point interest rate reduction would mark the ECB’s fourth cut this year, it would be smaller than the half-point some analysts had considered likely earlier this month after a closely watched survey showed business activity had fallen sharply.
Additional reporting by Ian Smith in London. Data visualisation by Janina Conboye
