Faster euro-zone inflation data, expected next week, is likely to remind European Central Bank (ECB) policymakers that while their 2% inflation target may be in sight, it remains elusive. Economists predict December’s consumer prices rose 2.4% year-over-year, a slight increase from November. Core inflation, excluding volatile items like energy, is projected to hold steady at 2.7%.
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Illustrative example of inflation trends.
Fuel Costs Continue to Drive Inflation Higher
This persistent inflation, primarily driven by fuel costs, presents a significant challenge for ECB President Christine Lagarde and policymakers. While Lagarde expressed optimism in early January about reaching the 2% target sometime in 2025, the recent surge in gas prices and potential US trade tariffs pose considerable risks to this outlook. The ECB’s own projections suggest the 2% target might be achieved in the fourth quarter of 2025.
“We have made significant progress in 2024 in bringing down inflation and hopefully 2025 is the year when we are on target as expected and as planned in our strategy,” Lagarde stated in a video posted on X. She emphasized the ECB’s commitment to “ensure that inflation stabilizes sustainably at that 2% medium-term target.”
Bloomberg Economics Forecasts Further Rate Cuts
Bloomberg Economics anticipates a generalized disinflation trend, allowing the Governing Council to implement further rate cuts totaling 100 basis points in 2025. This projection aligns with current market expectations.
ECB President Christine Lagarde discusses inflation targets.
Diverging Views Among Policymakers
Euro-zone inflation data, along with figures from Italy, will be released on Tuesday, following releases from France and Germany. Economists expect all three national inflation readings to show acceleration, mirroring the trend observed in Spain’s December report.
While Bank of Greece Governor Yannis Stournaras predicts a 100 basis-point cut in the ECB’s deposit rate by fall 2025, Austrian Governor Robert Holzmann suggests a more cautious approach. Holzmann cited resurgent energy prices and the potential for euro depreciation as factors that could reignite inflation, warranting a delay in further rate cuts.
Inflationary Pressures Persist in the Eurozone
The upcoming inflation data will provide crucial insights into the effectiveness of the ECB’s monetary policy and the overall health of the euro-zone economy. The persistent inflationary pressures underscore the delicate balancing act facing policymakers as they navigate a complex economic landscape. Achieving and maintaining price stability remains a paramount concern for the ECB in 2025. The central bank’s ability to successfully manage these challenges will significantly impact the region’s economic outlook. Reaching the 2% inflation target, while seemingly within reach, requires careful monitoring and potentially further policy adjustments.
