Falling energy prices helped reduce annual inflation in the eurozone in November, the first drop in a year and a half. But policymakers warn the worst may not be over yet.
Consumer prices in the 19 countries that use the euro as their currency rose at an annual rate of 10% in November. European Commission reported on Wednesday. In October, the rate hit a record 10.6%. Twelve months ago, it was 4.9 percent.
After months of soaring from one high to another, energy prices are showing signs of slowing as natural gas reserves across the European Union remain unusually high and temperatures mild.
While it remains the strongest driver behind eurozone inflation, the year-on-year increase in energy prices was 39.4% in November, down from 41.5% a month earlier. However, food prices rose slightly, to 13.6% in the year to November.
Overall, the so-called core inflation rate, which excludes food and energy, has remained steady at 5%.
In Europe’s largest economies, Germany (11.3%, down from 11.6%) and Spain (6.6%, down from 7.3), the annual inflation rate cooled in November, thanks to lower energy prices. Consumer prices in France, the currency bloc’s second-largest economy, rose 7.1% from a year earlier, matching October’s gain. The Baltic states, still heavily reliant on natural gas, continue to have the highest inflation rates in the bloc, led by Latvia at 21.7%.
Such divergence between eurozone countries is a challenge for policymakers and is expected to lead to heated debates about how best to handle the situation. With inflation well above the European Central Bank’s 2% target, some policymakers are warning that it is too early for the bank to slow down.
The head of the ECB warned this week that she did not believe inflation had peaked and made clear the bank would continue to raise interest rates as part of its efforts to bring prices down. After months of caution, the ECB raised rates by three-quarters of a point in both October and November.
Christine Lagarde, the bank’s president, told the European Parliament on Monday: “We don’t see the components or direction of the direction that leads me to believe that we have reached the peak of inflation and that it will decline in time. short time. Repeated comment made last month by Federal Reserve Chairman Jerome H. PowellMs Lagarde later added that she believes inflation still has “a way to go”.
Analysts are debating whether the ECB will continue with its more aggressive approach in recent months or tone down the increase to just half a percentage point at its next meeting on December 15.