The increase in consumer prices fell below the symbolic bar of 10% for the first time since October, when it had reached a record, at 10.6%, following a year and a half of uninterrupted rise.
The good news is confirmed on the inflation front in Europe, with a slowdown in the rise in prices at the end of 2022, driven by an upturn in the energy markets which seems to rule out the darkest economic scenarios.
The euro zone’s annual inflation rate fell in December for the second consecutive month, to 9.2%, following 10.1% in November, Eurostat announced on Friday.
The increase in consumer prices fell below the symbolic bar of 10% for the first time since October, when it had reached a record, at 10.6%, following a year and a half of uninterrupted rise.
The ebb is stronger than anticipated by analysts from Bloomberg and Factset, who forecast inflation at 9.5% and 9.7% respectively in December.
Driven by gas, oil and electricity prices, and to a lesser extent by food prices, inflation worsened from spring 2022 with market disruptions linked to the war in Ukraine .
“Doomsday Scenarios Averted”
The fall in inflation at the end of the year confirms the idea “that the most apocalyptic scenarios envisaged a few months ago will be avoided”, commented Friday Andrew Kenningham, expert of Capital Economics for Europe.
He is counting on a “sharp decline” in inflation in 2023, in particular thanks to the recent fall in wholesale gas prices.
“Nevertheless, a technical recession remains probable” with two consecutive quarters of decline in gross domestic product (GDP) in the euro zone during the winter, underlines Mr. Kenningham, who expects, like other experts, the continuation a restrictive monetary policy from the European Central Bank (ECB).
The slowdown in price increases observed in November and December only concerns the energy sector for the time being.
Admittedly, this component remains the one with the highest annual rate of price increase in December, but it fell sharply to 25.7%, following 34.9% in November, according to the European statistics office.
Soaring food prices (including alcohol and tobacco) continued in December, with an annual increase of 13.8%, compared to 13.6% the previous month.
Above all, the rise in industrial goods prices continued to worsen, at 6.4% (+0.3 points compared to November), like that of services, at 4.4% (+0.2 points) .
The ECB will remain firm
This deterioration, excluding energy, “means that the ECB should not deviate from its very strong approach adopted at the end of last year” with the continuation of the rise in interest rates despite the risks of recession, believes Bert Colijn , economist for ING bank.
But according to him, “it is likely that the peak of inflation is behind us” and the ECB’s objective of inflation at 2% “might be achieved much faster than expected”.
In its latest forecasts, the Frankfurt institution expects inflation to be 6.3% this year, then 3.4% in 2024 and 2.3% in 2025.
Since July the ECB has raised rates at the fastest pace ever recorded, raising them by a total of 2.5 percentage points, including 0.5 points in December with the firm intention of continuing the movement.
Among the 19 countries in the euro zone (Croatia became the 20th country to join the single currency on January 1), the lowest inflation rate was recorded by Spain in December, at 5.6% , ahead of Luxembourg (6.2%) and France (6.7%).
Consumer price inflation reached 9.6% in Germany and 12.3% in Italy.
The highest rates were in the Baltic countries, Latvia (20.7%), Lithuania (20%) and Estonia (17.5%), according to harmonized Eurostat data.