Euro-Zone Inflation Edges Higher, Backing Steady ECB Rates

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Euro-Zone Inflation Edges Higher, Backing Steady ECB Rates.

general :: 3hrs ago :: source - bloomberg

By Alexander Weber

(Bloomberg) -- Euro-area inflation inched up, supporting the European Central Bank’s view that there’s little reason to lower borrowing costs further.

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Consumer prices rose 2.2% from a year ago in November, up from 2.1% in the previous month and just ahead of the median estimate in a Bloomberg poll of economists. Core inflation, which strips out volatile food and energy costs, was unchanged at 2.4%, while closely watched services edged higher.

After the spike that followed the pandemic, inflation in the 20-nation euro zone has been close to the 2% level targeted by the ECB for nine months, with underlying pressures also fading, albeit more slowly.

The picture is very different among member-states, however, driven by their varying economic fortunes as well as base effects. National reports showed inflation quickened in Germany, held steady France and eased in Spain and Italy.

Lagarde last week underscored the ECB’s comfort with its current monetary-policy settings, saying in a TV interview that “we’re in a good position given the inflation cycle, which we’ve managed to get under control” and that rates are “set correctly.”

Investors and economists agree. They reckon the ECB will keep its deposit rate at 2% again this month, having slashed it from a peak of 4% in a streak of eight quarter-point cuts.

December’s meeting will feature fresh economic projections — including a first glance at 2028. Previous iterations have foreseen a temporary dip in inflation below 2%, which is likely to be exacerbated by a delay in the European Union’s new carbon-pricing system, though several officials have cautioned against putting too much weight on that issue.

Among factors stoking prices, wages catching up to past inflation have been largely to blame for elevated readings in sectors like services. An ECB tracker of collective-bargaining agreements, however, points to softer salary increases ahead.

What Bloomberg Economics Says...

“The stickiness of services inflation has been a main area of concern for the ECB because it mostly directly reflects domestic cost pressures. We believe the broader downward trend is likely to remain in place as wage growth normalizes to levels consistent with price stability.”

—David Powell, senior euro-area economist. Click here for full REACT

The benign backdrop for prices — alongside an economy that’s gathering momentum — has prompted most analysts to predict rates will stay where they are through 2026.

Amid long-standing challenges like trade and global conflicts, officials — while seemingly content — stress they’re ready to act if the outlook suddenly shifts.

“The markets are pricing in stability, with no rate increases or decreases in the coming months,” Vice President Luis de Guindos said in comments published Monday. “Although, obviously, given the level of uncertainty and unknowns in the international geopolitical environment, we are open to adjusting it.”

--With assistance from Joel Rinneby, Harumi Ichikura and Barbara Sladkowska.

(Adds Bloomberg Economics.)