Eurozone Inflation Receding and Now Pegged at 10%

UTC by Godfrey Benjamin · 3 min read
Eurozone Inflation Receding and Now Pegged at 10%
Photo: Unsplash

The cost of living crisis was a major challenge for the region this year as it attempted to bring down energy costs.

As the year is wrapping up, the efforts of the European Central Bank (ECB) to curtail the growing surge in inflation within the Eurozone seem to be yielding good fruits. Preliminary readings from Eurostat, the statistical office of the European Union, show that inflation is pegged at 10%, a figure that is lower than the 10.6% reported in October this year.

Despite the slowing pace, key aspects of the readings show that the inflation level is still significantly higher across a wide range of consumer products. Energy is projected to have the highest inflation reading of 34.9% on an annualized basis. This, however, compares with the 41.5% recorded in October.

Besides energy, food, alcohol, and tobacco saw an inflationary upshot of 13.6%, compared with 13.1% in October while non-energy industrial goods recorded a 6.1% growth without many changes compared with October. The Services sector also recorded a tiny decline and came in at 4.2%, compared with 4.3% in October.

The current drop in inflation has started fueling a number of speculations with respect to what the next steps will be for the ECB with respect to interest rate hikes.

“The fall in headline HICP inflation from 10.6% in October to 10.0% in November was the first decline since June 2021 and was a bigger fall than originally expected,” Andrew Kenningham, chief Europe economist at Capital Economics said in a note, adding “We would not be surprised to see the headline inflation rate rise again in December or January given the volatility in the monthly numbers, but there is little doubt that it will fall rapidly next year.”

Eurozone Inflation and Interest Rate Hikes

The cost of living crisis was a major challenge for the region this year as it attempted to bring down energy costs, fueled by the ongoing war between Russia and Ukraine earlier in the year. Thus far this year, the European Central Bank has hiked interest rates three times, with the largest increment coming in at 75 basis points.

European officials, including Edward Scicluna, the governor of the Bank of Malta had predicted earlier that the rate of inflationary growth is already getting to its peak. The reading is similar to related inflationary rates recorded in the United States earlier this month.

Despite the impressive figures, Economists are somewhat divided on whether it is the right time for the ECB to taper its rate hikes or not. While some believe the economy should be allowed to respond positively to the previous rate hikes, others are of the opinion that inflation is still sky-high and necessitates interest rates to push.

While the speculation mounts, ECB President, Christine Lagarde has reiterated the bank’s readiness to keep applying the appropriate measures until inflation is down to the projected 2% level.

“We expect to raise rates further to the levels needed to ensure that inflation returns to our 2% medium-term target in a timely manner,” she told European lawmakers.

Market News, News
Related Articles