Eurozone inflation slowed to an annual rate of 1.6 percent in December mainly due to lower energy costs, preliminary data from the EU statistics unit Eurostat showed Friday.
Falling oil prices helped limit increases in the costs consumers pay for energy of all kinds to an average of 5.5 percent, down from a 9.1 percent in November.
Overall inflation in the 19-member zone was 1.9 percent in November, and analysts polled by Factset had expected only a slight dip to 1.8 percent last month.
Economist Nicola Nobile at Oxford Economics felt the data “clearly bodes well for consumer spending, which we see accelerating this year.”
But European Central Bank monetary policy is aimed at keeping inflation just below but close to 2.0 percent, and the latest reading left the ECB “in an awkward spot with regards to their first rate hike,” ING economist Bert Colijn noted.
Core eurozone inflation, which strips out volatile items including energy, food, alcohol and tobacco, was stable in December at 1.0 percent, the Eurostat data showed.
The ECB has held its reference interest rate at zero since March 2016, and analysts have been looking for signs as to whether it might begin to raise the cost of borrowing later this year.
“But with inflation moving away from the target and an economy that is slowing, the question is whether the ECB will see a chance to hike at all,” Colijn said.
Bank board member Benoit Coeure told France Inter radio Friday that its rates “are going to remain low for a long time still”.
Referring to global risks, including that of a trade war between China and the US, Coeure added: “The machine to make crises is still there, there will be new financial crises and we have not done all we could in terms of financial regulation.”
He pointed in particular to parallel financial networks known as “shadow banking” but added that even among high-street banks, “with the financial crisis in the past, bad habits are coming back.”
ING economist Bolijn concluded that the ECB “is set for a year of uncertainty.”
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