After seven months of cooling, inflation in the Eurozone shot back up in December to 2.9%.
This rise, fueled by higher food prices and the end of energy bill subsidies in some countries, reignited a debate about the European Central Bank’s (ECB) next move.
While lower than its October 2022 peak of 10.6%, the December figure signals a detour from the recent downward trend. ECB President Christine Lagarde cautioned of further bumps in the months ahead, putting a damper on speculation of early interest rate cuts.
The central bank had aggressively raised rates to a record 4% last year, vowing to keep them high until inflation hit its 2% target. The rapid price plunge in late 2023 had emboldened some analysts to predict a rate cut as early as March.
But December’s inflation spike threw cold water on those hopes. Lagarde stressed the ECB’s commitment to its current course, reiterating that rates would stay put ‘as long as necessary’ to tame inflation.
With energy costs showing signs of stabilizing and government support measures gradually expiring, the immediate pressure on prices might ease.
The recent decline in inflation had led some analysts to whisper about potential rate cuts as early as March. However, December’s reversal throws those predictions into question. The ECB will likely remain cautious, monitoring the situation closely before making any decisions that could risk reigniting inflation.