Inflation in the eurozone takes a breather after 17 months, but remains high

The rate of inflation The eurozone year-on-year rate experienced its first decline in 17 months in November, since June 2021, but it still remained high, at 10.0%, according to figures released this Wednesday by the European statistics agency Eurostat.

In October, the inflation rate estimated by Eurostat had reached 10.6 percent. Since November of last year, inflation in the eurozone had broken its all-time high every month.

The setback registered in November is better than the expectation expressed by market sources, which pointed to an inflation of 10.4 percent.

According to Eurostat, inflation in November was still driven by energyalthough this segment experienced a clear slowdown, growing 34.9%, against 41.5% in October.

The other components of inflation had little change, according to Eurostat numbers.

The food segment (which includes alcohol and tobacco) advanced 13.6% (13.1% in October), non-energy industrial goods ended at 6.1%, unchanged from the previous month, and services fell marginally from 4.3% to 4.2 percent.

Of the main economies in the euro zone, Spain recorded the lowest year-on-year inflation in November, estimated by Eurostat at 6.6% (compared to 7.3% in October).

In Germany, inflation fell from 11.6% to 11.3%, while in Italy it fell from 12.6% to 12.5% ​​and in France it remained at 7.1 percent.

As in previous months, the Baltic countries showed the most worrying inflation rates: Latvia exhibited 21.7%, Lithuania 21.4%, the same level verified in Estonia.

ECB reaction

This deceleration of the inflationary trajectory could have important effects on the decisions of the European Central Bank (BCE), which between July and October of this year raised its reference rates by 2%, something never seen before in the history of that institution.

At the beginning of November, the president of the ECB, the French Christine Lagardewarned that the entity had “additional measures” in the pipeline until there was certainty of the inflation trend.

For Bert Colijn, an economist at ING bank, the inflationary trend is still high, but he pointed out that “the first signs that it could be at or close to its peak” are increasing.

For the ECB, Colijn added, tentative signs that inflation is peaking are increasing.”

So, he added, “this is likely to cause the ECB to shelve its 75 basis point hikes, to a smaller 50 basis point hike in December.”

Whether this is the peak of inflation remains to be seen. Another episode of the energy crisis could easily send inflation back up,” he warned.

For his part, Andrew Kenningham, chief economist at the consultancy Capital Economics, pointed out that “it will not be a surprise” if the inflation rate rises again in December and January, given the “volatility” of the November numbers.

“But there is no doubt that inflation will fall rapidly next year,” he added.

Kenningham also expressed his expectation that the ECB will adopt another benchmark rate hike “of 50 basis points or even 75 basis points.”