Eurozone consumer price inflation held steady at an annual rate of 2.4% in December 2024, matching November’s figure and aligning with economist forecasts. This stability, while above the European Central Bank’s (ECB) 2% target, reinforces the bank’s policy of implementing consecutive interest rate cuts to bolster the fragile eurozone economy.
Month-on-month inflation also remained consistent at 0.4%, mirroring November’s level. Core inflation, which excludes volatile components such as food and energy prices, persisted at 2.7%. The primary contributors to the annual inflation rate in December were services, followed by food, alcohol and tobacco, non-energy industrial goods, and finally, energy.
This sustained inflation rate provides support for the ECB’s anticipated course of action, which involves successive interest rate reductions at least until July. This strategy aims to protect the eurozone economy, which is currently facing perceived threats from US tariffs, according to a Reuters poll of economists.
The poll, conducted earlier this week, revealed a unanimous consensus among 77 economists that the deposit rate would be lowered by another 25 basis points this month to 2.75%. Furthermore, a significant 60% majority anticipate three additional rate cuts by mid-year. This proactive approach by the ECB reflects the prevailing economic uncertainty and the need for monetary stimulus.
The eurozone inflation data follows the release of UK inflation figures, which surprisingly indicated a deceleration in price increases during December. This slowdown, attributed to lower hotel and tobacco costs, resulted in a 2.5% annual inflation rate for the UK, down from 2.6% in the preceding month. This suggests a moderation in the pace of price rises in the UK. Easing price pressures in restaurants and declining hotel prices contributed to the overall decrease in the UK’s inflation rate, complemented by slower inflation in tobacco, clothing, and footwear.
In conclusion, the stable inflation rate in the eurozone, coupled with concerns about economic vulnerabilities, underscores the rationale behind the ECB’s commitment to interest rate cuts. This monetary policy stance aims to provide support to the eurozone economy amidst ongoing global trade tensions and economic uncertainty. The divergence in inflation trends between the eurozone and the UK highlights the complexities of the current economic landscape and the need for tailored policy responses.
