What It Looks Like in Germany, France and Spain: The effect from Europe’s largest economies.
In Germany, inflation jumped at an annual rate of 3.8 percent, up from 2.3 percent in November. But the increase was less than expected and driven by a statistical quirk: Energy costs in late 2022 were pushed to particularly low levels by one-time payments to households.
For this year, economists are forecasting only minimal economic growth for Germany, believing that consumers will hold back on spending and exports will be hurt by uncertainty in global markets.
In France, where government support for energy costs were also withdrawn, consumer prices increased to 4.1 percent from 3.9 percent in November.
Price increases in Italy fell slightly, to 0.5 percent. Last week, Spain reported that consumer price increases in December held steady at 3.3 percent.
Overall Inflation Eases: Food prices are main driver of price increases but continue to slow.
Energy prices in the eurozone shrank 6.7 percent from the previous December, when they jumped at an annual rate of 25.5 percent. The price of food was the leading cause of inflation — food, alcohol and tobacco rose 6.1 percent in December — but it too has been falling in recent months.
Excluding the price of food and energy, so-called core inflation rate slowed for the fifth month in a row to 3.4 percent in December, down from 3.6 percent the previous month. That figure is important for policymakers, because it reflects underlying trends.
Analysts noted that consumer demand remains weak and inventories of goods are high. Those two factors are helping ease pressure on prices.
“So overall, the outlook for inflation continues to be quite benign and we expect eurozone inflation to be around 2 percent again by the end of the year,” said Bert Colijn, a senior economist at ING Bank.
Looking Ahead: The European Central Bank remains cautious.
The report on Friday is in line with what the European Central Bank had expected. The bank’s president, Christine Lagarde, said last month that policymakers were expecting inflation to increase briefly before easing again and reach the bank’s inflation target on 2 percent in 2025.
Policymakers at the bank are trying to convince investors that they will not cut interest rates before they are certain that inflation will not jump again. But traders are expecting the European Central Bank to cut rates in the first half of next year.