Eurozone inflation rises less than expected in December

Inflation in the eurozone accelerated in December, according to Eurostat on Friday, but by less than expected, reinforcing expectations that the European Central Bank will soon move to cut interest rates.

The annual change in the harmonised index of consumer prices rose to 2.9% last month, a significant increase from 2.4% in November but below the consensus estimate for a stronger increase to 3.0%.

This jump was largely a result of a big drop in energy prices in Germany in December 2022 due to one-off subsidies by the government which is expected to be only temporary as core inflation continued its downward trend.

"German energy inflation, up by 9ppts to +4% was the main culprit as energy inflation was impacted by a strong base effect," said economist Nicola Nobile from Oxford Economics.

The core rate of annual inflation, which strips out volatile items like food and energy, actually eased to 3.4%, from 3.6% the month before and below the 3.5% market forecast.

"Overall, apart from the monthly volatility, this was another encouraging inflation report and further confirms that a quick disinflationary process is underway. But today's print will not offer any major insights on the ECB easing cycle," Nobile said.

"We expect that the January inflation print will be much more informative, as large price adjustments typically happen at the start of the year, with this year's January print also impacted by the end of the energy-related fiscal measures in some countries."