Last week, we got the first figures for consumer price inflation in the euro area for December.
According to preliminary data, prices rose 2.9 percent year-on-year in December. In November, the annual change was 2.4 percent.
Economists know how to wait According to CNN The 2022 rise is partly due to governments scrapping generous subsidies introduced to support households during the energy crisis.
It is noteworthy that the annual inflation has increased in the leading economic countries of Europe such as Germany and France.
Consumer price inflation in Germany stood at 3.8 percent in December, compared with 2.3 percent in November, according to official estimates released on Thursday.
According to preliminary data, the annual consumer price index in France rose to 3.9 percent in the previous month from 4.1 percent in December.
Is acceleration a temporary phenomenon?
Commercial Bank Economists John Ronkanen News service X (formerly Twitter) says inflation rose in nine of the 20 euro area member states, including Finland, in December.
Correspondingly, inflation declined in 10 countries. Inflation in Spain remained unchanged.
According to Ronkanen's assessment in X, the acceleration of inflation in the entire euro area is explained by the rise of the consumer price index in the two largest member states, Germany and France.
OP Finance Committee Senior Market Economist Jari Hannikinen Mostly the same way.
Hannikainen says in his market commentary that the acceleration of inflation in the eurozone is a nightmare and largely explained by the removal of the effects of temporary energy subsidies at the end of 2022.
According to Hännikäinen, the acceleration of annual inflation does not indicate an increase in price pressures, nor does it change the outlook for monetary policy.
“We expect the acceleration in inflation seen now to be a temporary phenomenon and to gradually moderate as we move towards spring,” says Hähnikainen.
The figures were largely in line with expectations
Municipal Finance Chief Economist Timo Vesala The news service estimated at X that preliminary euro area inflation figures were close to expectations.
According to the figures, core inflation across the entire euro area fell in December. Core inflation was 3.4 percent, up from 3.6 percent in November.
According to Vesala, the upward pressure on seasonally adjusted core prices clearly eased in the last quarter of 2023, and when annualized, the rate fell significantly below the European Central Bank's target rate.
The market expects the ECB to start cutting interest rates this year, but it is difficult to estimate exactly when. The market is now pricing in six interest rate cuts for the year to date, a change of 1.5 percentage points.
Uncertainty in the air
The outlook changed relatively quickly as Wednesday's pricing was close to seven interest rate cuts for the year.
According to Hännikäinen, the OP expects the first interest rate cut from the ECB in June, but there are significant question marks over the start schedule of interest rate cuts. Hännikäinen said core inflation has been above the ECB's target level for 26 months in a row, which will surely irritate the central bank.
“Nevertheless, core inflation has declined encouragingly in the past few months and will decline further as sluggish economic growth in the euro area hampers conditions for price increases,” assesses Hannikainen.
For example, the market is already pricing in the first rate cut for April, even though there are still risks associated with the inflation picture as a result of the tightening situation in the Middle East.
