Inflation is on the rebound in Europe
FRANKFURT, Germany — Inflation plaguing Europe rose to 2.9% in December, rebounding after seven straight monthly declines as food prices rose and support for high energy bills ended in some countries. The rise in price levels fueled debate over how soon interest rate cuts could be expected from the European Central Bank.
The figure released Friday was up from the 2.4% annual inflation recorded in November — but is well down from the peak of 10.6% in October 2022.
ECB President Christine Lagarde warned that inflation could tick up in coming months, taking a detour from its recent downward path. The central bank for the 20 European Union countries that use the euro currency has raised its benchmark interest rate to a record-high 4% and says it will keep it there as long as necessary to push inflation down to its goal of 2% considered best for the economy.
The faster-than-expected fall in inflation over the last months of 2023 had led some analysts to predict the central bank would start cutting interest rates as early as March.
The December rebound, however, was grist for analysts who predict that rates wouldn’t start to come down until June.
“The increase serves as a reminder that interest rate cuts in the first quarter are unlikely, but this shouldn't dispel expectations of cuts later in the year,” said Bert Colijn, senior eurozone economist at ING bank.
Views differed on the significance of the higher inflation number. December's increase was a “just a blip” that would be reversed in January, said Jack Allen-Reynolds, deputy chief eurozone economist at Capital Economics. He foresees a first rate cut in April.
Inflation in December got a boost from the end of energy subsidies in
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