Euro Zone Inflation Cools to 2.4% in November

A weekend crowd was seen visiting the Aachen Christmas market in Germany. The general view took place on November 25, 2023. (Photo by Ying Tang/NurPhoto via Getty Images)

Annual inflation in the euro zone cooled to 2.4% in November from 2.9% in October, according to flash figures released recently. This came as a surprise to economists who had polled by Reuters and expected a reading of 2.7%.

Drop in Core Inflation

Core inflation, which is a measure closely-watched by the European Central Bank and excludes the volatile effects of energy, food, alcohol, and tobacco, also came in lower than expected, dropping to 3.6% from 4.2% in October.

Energy Prices and Other Contributions

Energy prices continued to record significant year-on-year declines, coming in at -11.5% in November. Conversely, food, alcohol, and tobacco contributed with the biggest pull higher, at 6.9%.

Significant Decrease from Peak Levels in 2022

Headline inflation has now cooled significantly from the peak levels of 10.6% in October 2022. Inflation in the euro zone’s largest economies, Germany and France, has dropped to 2.3% and 3.8%, respectively.

Caution from ECB Officials

European Central Bank officials have repeatedly stressed that it is too early to declare victory over price rises in the 20-member euro zone bloc. They are monitoring potential pressures from wage increases and energy markets.

Market Reaction and Unemployment Data

Mathieu Savary, chief European strategist at BCA Research, said that traders would now be tempted to bring forward expectations for the timeline of the first ECB rate cut. However, separate data released by statistics agency Eurostat on Thursday showed that unemployment in the euro area remained at a record low of 6.5% in October, despite a contraction in the euro zone economy in the third quarter.

Market Expectations and Insights

“For the ECB, signs of an imminent victory on inflation are mounting,” said Bert Colijn, senior euro zone economist at ING. He added that some of the impact from existing monetary tightening was yet to be felt. “The market is therefore right to start looking at rate cuts for 2024,” he said. “We think the first one could well happen before the summer.”

Overall, while there is a general view that inflation has cooled significantly in the euro zone, there is still caution from the European Central Bank and expectations of potential rate cuts in the future.