Double-digit inflation in the eurozone dropped further than expected last month, raising hopes that price growth has peaked amid an environment of falling energy prices.
Annual consumer price inflation (CPI) in the 20-country eurozone declined from 10.1 per cent to 9.2 per cent in December, better than economist expectations of 9.7 per cent, according to figures from Eurostat.
The sharp decline in CPI was driven by an easing in annual energy price inflation which rose by 25.7 per cent last month compared with the same period in 2021, down from the 35 per cent climb recorded in November.
An easing was expected after Germany recorded a better-than-expected decline in CPI in December, caused by the government’s one-off payment of household energy subsidies.
Hopes for a shallow economic downturn in the single currency area have risen after market energy prices wiped out their post-war climbs in the last week. Unseasonably warm weather helped to drive up record levels of gas storage in parts of Europe in December.
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Despite the drop in headline inflation, a measure of core inflation which strips out volatile elements like energy, rose by 20 basis points to a fresh record high of 5.2 per cent last month. Services prices also rose from 4.2 per cent to 4.4 per cent, in a sign that underlying inflationary pressures remain strong.
Riccardo Fabiani, an economist at Oxford Economics, said core inflation rates were unlikely to subside quickly. “The delayed pass-through of high production costs and a still-strong labour market will sustain core inflation. We expect inflation to cool only gradually, remaining high in the short term,” he said.
Record core inflation is likely to embolden hawkish members of the European Central Bank, who have pushed for a continuation of the bank’s aggressive path of monetary tightening this year. Fabiani said he expected two more 50 basis point increases from the ECB in the coming months.
