What It Means: Soaring energy and food prices have been tamed.
Energy prices decreased by 11.5 percent from a year ago, following a nearly 35 percent surge in the cost of fuels and electricity due to a shortage of energy supplies during Russia’s war in Ukraine. Meanwhile, food prices saw a 6.9 percent increase, which is about half the rate of the previous year.
Excluding food and energy prices, core inflation, which is a measure that excludes volatile items such as food and energy, rose by 3.6 percent, representing a significant slowdown compared to previous months.
Efforts by governments in France, Germany, and Spain to lower food and energy bills have been aimed at helping consumers who have been hit by the cost-of-living crisis. In Belgium, prices have contracted for the second consecutive month, indicating a faster disinflation process than previously anticipated, as noted by Bert Colijn, senior eurozone economist at ING Bank. This suggests that there are increasing signs of a forthcoming victory over inflation for the European Central Bank.
Behind the Numbers: Big economies are seeing sharply lower prices.
In Germany, inflation declined more than expected to 2.3 percent from a year ago, aided by easing price pressures across all sectors of the economy. Although the government has been providing subsidies for food and energy to households, this program is expected to wind down soon.
Spain experienced a drop in the annual inflation rate to 3.2 percent in November, due to cheaper fuel and discounted travel deals within the tourism industry, a significant contributor to the country’s growth.
Meanwhile, inflation in the French economy was 3.8 percent in November from a year ago, down from 4.5 percent in October, according to Eurostat.
Commenting on this, Bruno Le Maire, the economy minister, highlighted that managing to control inflation within two years is a significant achievement, especially considering that it took 10 years to achieve the same in the 1970s. This success, however, comes at the cost of higher interest rates, more difficult financing, and consequently, an economic slowdown, he added.
Keep in Mind: Inflation is expected to linger as growth slows.
Christine Lagarde, the president of the central bank, stated last month that while inflation has sharply decreased, prices are still anticipated to remain too high for an extended period, with strong domestic price pressures persisting.
The central bank has raised interest rates since July 2022 to tackle the surge in inflation triggered by last year’s rise in energy prices. Interest rates, which were previously below zero, are now at their highest level in the central bank’s two-decade history.
However, Europe is facing a prolonged economic slowdown due to high interest rates and the lingering impact of Russia’s war in Ukraine, both of which continue to restrain economic activity. The eurozone economy only grew at an annual rate of 0.1 percent from July to September, in contrast to significantly faster growth during the same period in the United States.
Looking Ahead: Talk is growing of a cut in eurozone interest rates
The economic downturn underscores the challenges faced by policymakers at the European Central Bank, who recently halted their campaign of interest rate increases following indications of a weakened regional economy.
Officials are now deliberating on the duration for which they will need to maintain high interest rates to bring inflation down to the central bank’s target of 2 percent. They remain concerned about factors such as wage growth and potential spikes in the energy market that could propel inflation to higher levels once again, according to Mr. Colijn. ING Bank and others expect the E.C.B. to commence reducing interest rates next year, possibly before the summer.
