Eurozone Inflation Eases on Lower Energy Prices
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Lower energy prices helped to push inflation in Europe lower last month, the European Commission reported on Friday, but many prices are still rising at a brisk pace and policymakers have given little indication that they plan to halt planned interest rate increases.
Consumer prices in the countries that use the euro as their currency rose at an annual rate of 9.2 percent in December, down from the double-digit levels of 10.1 percent in November and 10.6 percent in October.
Declines in inflation reported this week in France, Germany and Spain sparked hopes that the relentless rise across the continent may have finally peaked. But several influential voices urged caution, noting that while the so-called headline rate of inflation has eased, core inflation, which strips out volatile food and energy prices, has not shown the same drop. In fact, for December, the eurozone’s core rate of inflation rose to 5.2 percent, from 5 percent the month before.
Europe has benefited from a streak of mild weather, which has lowered the demand for energy, particularly the natural gas used to power much of the continent’s heating infrastructure. Several governments have also offered subsidies to blunt the painfully high energy prices that consumers pay. The drop in Germany’s inflation rate, to 9.6 percent in December, was partly due to one-time assistance to help households pay their energy bills, according to the government’s statistics office.
“Europe is very lucky at the moment with the weather,” said Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics. He added that government energy relief had inserted a “wedge between reality and the data.”
“It’s a price control,” he said, and “once you take out that, it’s not as clear that inflation is that benign.”
The European Central Bank has already indicated that it will raise interest rates half a point in February. Christine Lagarde, the bank’s president, said last month that she expected interest rates to rise “significantly further, because inflation remains far too high and is projected to stay above our target for too long.”
The Federal Reserve, the U.S. central bank, is also expected to continue raising rates.
This week, Gita Gopinath, first deputy managing director of the International Monetary Fund, told the Financial Times that the Fed should “stay the course” with its planned increases.
“I think it’s clear that we haven’t turned the corner yet on inflation,” she said. At the same time, the fund has also projected that a third of the world economy will face recession this year.