Eurozone inflation eases as energy prices fall
Eurozone inflation fell more sharply than expected in December as energy prices retreated, according to data released on Friday by Eurostat.
Consumer price inflation rose 9.2% in the year to December, down from 10.1% in November and versus expectations of 9.7%.
Falling energy prices were the main factor behind the decline, with annual energy price inflation slowing to 25.7% in December from 34.9% the month before.
Still, core inflation rose to 5.2% last month from 5% in November, while food inflation increased to 13.8% from 13.6%.
Bert Colijn, senior eurozone economist at ING, said rising core inflation means that not much will sway the European Central Bank from the hawkish path it set out late last year.
"The next two months will be critical as many businesses traditionally change prices at the start of the year," he said. "It could therefore be that core inflation rises further from now. While consumption remains under pressure and retail sales have been trending down for quite some time now, businesses continue to adjust their prices to the supply-side shocks of 2021 and 2022.
"So while supply-side shocks are fading - not just energy, but also think of container prices and various production inputs - core inflation is still adjusting with a lag."
Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics, said the data offer plenty of ammunition for both doves and hawks at the ECB, pointing to tense negotiations among policymakers in the next few months.
"The doves will rightly point out that these numbers, and what now appears to a peak in the headline, suggests that the upwardly-revised December inflation forecasts are way too high," he said.
"Indeed, even before this week’s data, the new projections looked like a sitting duck for a downgrade to us. At this rate, a downgrade is coming in March. The hawks, by contrast, will note that underlying core inflation is still far too high for comfort, and that it shows no signs of abating. They will also point out that the fall in headline inflation in December was propelled by fiscal stimulus, which, in their framework, will be seen as net inflationary, for the core, as it frees up disposable income to drive further upward pressures in underlying inflation."