November CPI at 10%... Energy Price Surge Slows Down
Core Inflation Index Still Rising... "No Relief Expected Until Next Year"
[Asia Economy Reporter Lee Ji-eun] The Eurozone's Consumer Price Index (CPI), which had been hitting record highs before and after Russia's invasion of Ukraine, has slowed down for the first time in 17 months. Optimistic forecasts that inflation driven by the energy supply crisis has peaked have raised expectations that the European Central Bank (ECB) will slow the pace of interest rate hikes.
According to Bloomberg on the 30th, Eurostat, the statistical office of the European Union (EU), announced that the Eurozone's CPI in November rose 10.0% compared to the same month last year. This figure was below the market expectation of 10.4%. It also fell 0.6 percentage points (P) compared to the previous month’s 10.6%, which was the highest since related statistics began in 1997.
The slowdown in energy price increases is credited with pulling down the overall inflation rate. Last month, energy prices in the Eurozone rose 41.9% year-on-year, but in November, they increased by only 34.9%.
By country, the inflation rate in the Netherlands slowed the most, dropping from 16.8% in October to 11.2% in November. France’s inflation remained at 7.1% last month, while Germany’s slowed from 11.6% in October to 11.3% in November, and Spain’s from 7.3% in October to 6.6% in November.
As interpretations emerge that the Eurozone’s inflation rate has peaked, market attention is turning to the ECB’s monetary policy meeting scheduled for the 15th of next month.
Since the CPI, a key indicator for the ECB’s interest rate hikes, has shown signs of slowing, there is a possibility that the ECB may reduce the rate hike to 0.5%P next month. Previously, the ECB implemented a ‘giant step’ by raising the benchmark interest rate by 0.75%P for two consecutive months in September and October.
Bert Colijn, an economist at ING Bank, told major foreign media, "Considering the current economic situation, it seems likely that the ECB will raise interest rates by 0.5%P next month," adding, "The previous giant steps have made progress in easing inflation."
CNBC also reported, "Market participants strongly expect the ECB to raise interest rates by 0.5%P in December."
However, there are considerable counterarguments that it is difficult to say inflation has peaked. The Eurozone’s core CPI, which excludes volatile items such as fresh food and raw materials, actually rose 6.6% year-on-year, up from 6.4% in October. This is interpreted as meaning that the overall inflation trend excluding energy prices has not yet eased.
Kirstof Weil, an economist at Commerzbank, said, "(This indicator) does not mean that the war against inflation has been won," adding, "Fundamental upward pressure on prices is unlikely to diminish until mid-next year."
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