Eurozone Inflation Weakest Since Mid 2021

(RTTNews) - Eurozone inflation eased more than expected to the weakest in more than two years in November and the unemployment rate remained unchanged at a lower level, raising hopes that the European Central Bank may cut interest rates earlier than currently forecast.

Inflation softened to 2.4 percent in November from 2.9 percent in October, flash data from the statistical office Eurostat revealed Thursday.

The rate was the lowest since July 2021 and also below economists' forecast of 2.8 percent.

Core inflation that excludes energy, food, alcohol and tobacco, decelerated to 3.6 percent from 4.2 percent. This was also below the forecast of 3.9 percent.

All components of the HICP weakened in November. Energy prices posted an annual fall of 11.5 percent after decreasing 11.2 percent in October.

Food, alcohol and tobacco prices rose 6.9 percent, slower than the 7.4 percent rise a month ago. The increase in non-energy industrial goods prices slowed to 2.9 percent from 3.5 percent.

Similarly, the increase in services inflation weakened to 4.0 percent from 4.6 percent.

Month-on-month, the harmonized index of consumer prices fell 0.5 percent in November.

Final data for November inflation is due on December 19.

The ECB held its key interest rates steady late October after hiking them in the past 10 sessions as policymakers assessed that the current level of rates was sufficient to ensure a sustainable return of inflation to the 2 percent target.

The central bank thus far maintained that inflation will ease in the coming months, but it is unlikely to return to the 2 percent target soon.

The bank expects inflation to retreat to the 2 percent target "sustainably" only in 2025. The next round of ECB Staff projections are due in December.

Earlier this month, ECB President Christine Lagarde warned of the risk of persistence of inflation, which is an assessment in line with her peers like the U.S. Fed Chief Jerome Powell and Bank of England Governor Andrew Bailey.

Other ECB policymakers have also echoed Lagarde's view and assert that it is too early to declare victory in the battle against high inflation.

With headline and core inflation likely to trend down in the new year, it will hard for the ECB to ignore the extent to which the inflationary tide is turning, Capital Economics economist Andrew Kenningham said.

"With near-recession conditions set to drag on and inflation likely to be close to 2 percent by the middle of 2024, we now think the case for the Bank to ease up on monetary policy by then will be too strong for the ECB to resist," Kenningham added.

For the ECB, signs of an imminent victory on inflation are mounting, ING economist Bert Colijn said, who expects the first rate cut to arrive before the summer.

Elsewhere, separate data from the statistical office showed that the euro area jobless rate remained unchanged at 6.5 percent in October. The rate also matched expectations.

The number of people out of work increased by 48,000 from September. From the last year, the unemployment rose by 28,000.

The youth unemployment rate was 14.9 percent, up from 14.6 percent a month ago.