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Eurozone inflation reached 2.3% in November, surpassing the European Central Bank’s target for the first time in three months.
The increase in consumer prices on Friday met economists’ predictions and exceeded the 2% figure from October, aligning with the ECB’s medium-term target.
Economists suggest that the rise was not primarily driven by underlying price pressures and is unlikely to deter the ECB from potentially reducing rates in December.
The 2.3% increase was mainly due to base effects, as energy prices were lower a year ago, serving as the point of comparison for calculating annual inflation.
Most investors anticipate that the ECB will decrease borrowing costs by 0.25% to 3% at the upcoming policy meeting on December 12, based on data from interest rate swaps markets.
Tomasz Wieladek, an economist at T Rowe Price, believes that underlying inflation trends are likely weaker than the latest figures suggest.
In September, inflation dropped below the 2% target for the first time in over three years.
“The recent data will enable the ECB to shift towards a more dovish policy during the December meeting,” stated Wieladek.
Services inflation, closely monitored by rate-setters for insights on the persistence of price pressures, decreased from 4% to 3.9% in the latest report.
Core inflation, excluding food and energy price changes, stood at 2.7%, serving as a more reliable indicator of underlying price trends.
While a 0.25% interest rate cut would be the ECB’s fourth reduction this year, it is smaller than the previously anticipated 0.5% cut following a significant decline in a closely watched business confidence survey earlier this month.
“The resilience of service price inflation, robust wage growth, and the recent euro depreciation suggest that the ECB will likely continue its gradual approach to monetary policy easing in December,” explained Diego Iscaro, an economist at S&P Global Market Intelligence.
Additional reporting by Ian Smith in London. Data visualization by Janina Conboye