Lower energy prices helped bring down inflation in Europe last month, the European Commission said on Friday, but many prices are still rising at a brisk pace and authorities have given little indication they plan to halt planned increases in energy prices. interest rates.
Consumer prices in countries that use the euro as their currency rose at an annual rate of 9.2 percent in December, down from double-digit levels of 10.1 percent in November and 10.6 percent in October.
The decline in inflation has raised hopes that the relentless rise across the continent may finally have peaked. But several influential voices urged caution, noting that while the so-called inflation rate has declined, core inflation, which excludes volatile food and energy prices, has not shown the same drop. In fact, in December, the euro zone’s core inflation rate rose to 5.2%, up from 5% the previous month.
Europe benefited from a period of mild weather, which reduced demand for energy, particularly the natural gas used to fuel much of the continent’s heating infrastructure. Several governments have also offered subsidies to mitigate the painfully high energy prices that consumers pay. The drop in Germany’s inflation rate, to 9.6 percent in December from 11.3 percent the previous month, was due in part to one-off aid to help families pay their energy bills, according to the government statistics office.
Data showed that euro zone energy prices rose at an annual rate of 25.7 percent in December, down from 41.5 percent in October.
“Europe is very lucky at the moment with the weather,” said Claus Vistesen, Pantheon Macroeconomics’ chief economist for the euro zone. He added that the government’s energy relief inserted a “wedge between reality and data”.
“It’s a price control,” he said, and “once you take that away, it’s not so clear that inflation is so benign.”
Almost all eurozone countries marked a decline in their main inflation rate in December, including France (6.7%, from 7.1% in November), Italy (12.3%, from 12.6%) , Spain (5.6%, from 6.7%) and the Netherlands (11 percent, from 11.3 percent).
The numbers bolstered the argument that the euro zone’s record pace of inflation last year will slowly fade into 2023.
“We’re probably already past the peak,” Riccardo Marcelli Fabiani, an economist at Oxford Economics, said in a note on Friday. But he added: “We expect inflation to cool only gradually, remaining high in the near term.”
The European Central Bank, which is targeting annual inflation of 2%, has already indicated it should raise interest rates by half a point in February. Christine Lagarde, the bank’s president, said last month that she expected interest rates to rise “significantly further, as inflation remains very high and is expected to stay above our target for a long time to come.”
The December data, which shows a reduction in overall inflation but persistent pressure on underlying prices, is likely to trigger “tense negotiations among policymakers in the coming months”, Vistesen noted after the figures were released.
The Federal Reserve, the US central bank, is also expected to continue to raise rates.
This week, Gita Gopinath, first deputy managing director of the International Monetary Fund, told The Financial Times that the Fed should “stay the course” with its planned increases.
“I think it’s clear that we haven’t gotten over inflation yet,” she said. At the same time, the fund also projects that a third of the world economy will face recession this year.
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