Eurozone inflation rises, 'underlying' price growth remains stable (#1682914)

Euro zone inflation accelerated in November and its most closely watched components remained high, data showed on Friday, adding to the case for a more cautious interest rate cut by the European Central Bank on next month.

Consumer price inflation in the 20 countries that share the euro stood at 2.3% in November, according to Eurostat data. This figure was higher than the previous month's 2.0% and the ECB's 2% target, but in line with expectations.

Inflation rose mainly due to a statistical base effect, as last year's exceptionally low figures were removed from the time series and replaced by still relatively modest, but somewhat higher figures, leading to a fall in prices of 0 .3% in the month.

Core inflation, the ECB's main focus when setting interest rates, remained stable at 2.7%, as the small slowdown in service costs was offset by higher goods inflation.

Price growth in services, the largest item in the consumer price basket, has wavered on both sides of 4% over the past year and slowed to 3.9% this month from 4.0%.

Prices for services tend to be higher than the overall average, but policymakers argue that a figure closer to 3% is desired as the drag on energy and imported goods will fade over time.

Friday's reading, however, does little to alter the overall picture that inflation is slowly returning to the ECB's target on a more durable basis next year, so further cuts to the 3.0 deposit rate remain justified. 25%.

The key question for now is whether a 25 basis point move on December 12 is enough or whether the bank should opt for a larger 50 basis point move.

Camp 25 maintains that prices for services remain too high for comfort and that wages continue to expand rapidly, supported by record unemployment. Even if growth is low, they are consistent with the “soft landing” scenario, the ECB's goal from the beginning.

Meanwhile, supporters of a bigger cut say the economy continues to avoid a recession, so a bigger push is needed to protect jobs, as a rise in layoffs would curb already weak demand, leading to more cuts. of jobs in a self-reinforcing circle.

While this debate is unlikely to be resolved until authorities receive the ECB's new economic projections on the eve of the December 12 meeting, even the most moderates have defended gradualism, suggesting they could accept a 25 basis point cut. .

There is also reason to keep some powder dry until the new US administration takes office and policy ideas become real policies, as they could have a material impact on the global economy.

Markets are already pricing in a smaller cut, but now see less than a 10% chance of a larger move of 50 basis points. However, expectations have been volatile and prices were close to 50% last week after a particularly weak business survey.

Regardless of the December 12 move, investors are betting on a steady stream of rate cuts and monetary policy easing is anticipated at each meeting, at least until next June. The deposit rate is then forecast to fall to 1.75% by the end of 2025, a level low enough to once again stimulate growth.