(Bloomberg) — Euro-area inflation climbed above the European Central Bank’s 2% target, though officials are unlikely to be deterred from continuing to lower interest rates next month and beyond.
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Consumer prices rose 2.3% from a year ago in November, up from 2% in October and matching the median estimate in a Bloomberg survey of analysts. Energy base effects were a big contributor to the advance, while services-cost increases stayed elevated, Eurostat said Friday. Prices of non-energy industrial goods quickened for a second month.
Closely watched core inflation, which excludes volatile food and energy prices, defied predictions that it would also edge higher, holding instead at 2.7%.
The uptick in the headline number was expected, according to ECB Vice President Luis de Guindos, though he expressed caution over services prices.
“We are confident that inflation will continue to drop,” he told an event in S’Agaró, Spain. “But the context of uncertainty is very intense.”
ECB officials have telegraphed a fourth quarter-point rate reduction of 2024 at their final policy meeting of the year in less than two weeks. While more moves will follow, the timing is clouded by stubborn pockets of inflation, and factors such as the Federal Reserve’s own monetary-easing plans following Donald Trump’s re-election.
The ECB’s more dovish policymakers, such as Greece’s Yannis Stournaras and Portugal’s Mario Centeno, worry that Europe’s weakening economy risks inflation undershooting the 2% goal. They’ve intensified calls to rapidly bring the deposit rate, currently at 3.25%, to 2% — a level seen by them as neutral, so neither restricting nor stimulating growth.
France’s Francois Villeroy de Galhau even said Thursday that the ECB may need to take borrowing costs into expansionary territory to promote growth, echoing recent comments by his Italian counterpart Fabio Panetta.
Investors appear to share similar concerns: A key market gauge of medium-term inflation expectations dipped below 2% this week for the first time since 2022.
What Bloomberg Economics Says…
“inflation ticked up in November, with the jump mostly explained by base effects in fuel prices. That’s not something likely to trouble policymakers at the ECB. The big picture remains one of generalized disinflation and weak growth which will allow the ECB to keep cutting into 2025. We expect back-to-back cuts until March and 100 basis points of easing next year.”
