inflation at its lowest since July 2021, markets speculate on a rate cut in 2024

2023-11-30 15:52:00

The level of inflation is getting closer and closer to the target set by the European Central Bank (ECB). As a reminder, the main mission of the monetary institution is to ensure price stability to enable the balance of the economy within the euro zone (the twenty countries to have adopted the single currency). However, to do this, it must maintain inflation at 2%.

And according to figures published by Eurostat this Thursday, the inflation rate fell to 2.4% in November over one year, compared to 2.9% in October. This first estimate for November is even lower than what analysts from Bloomberg and Facset had predicted – who were counting on 2.7% -, the figure thus reaching its lowest level since July 2021. Inflation is now well below far from the record reached in October 2022 at 10.6%, several months following the outbreak of the conflict in Ukraine which caused a surge in energy prices. It has also particularly decreased since last summer since the price increase still reached 5.2% in August.

Not to mention that the decline recorded in November affects all components of the indicator, excluding energy. Thus, the surge in food prices (including alcohol and tobacco) slowed to 6.9%, following 7.4% in October. The increase in prices for services weakened, to 4% (-0.6 point), like that of industrial goods, to 2.9% (-0.6 point). As for the fall in energy prices, observed in recent months, it has even become more pronounced: they fell by 11.5% in November over one year, following 11.2% in October.

Electricity: why bills will continue to soar

Towards maintaining rates at their current level?

What is enough to convince the ECB to maintain its rates at the current level, without ordering a further increase? The figure published this Thursday might even increase the probability of a first rate cut in 2024, on which the markets are speculating. “The larger than expected fall in inflation in November makes it increasingly untenable for (ECB) leaders to pretend that they are not even considering cutting rates”, commented Andrew Kenningham, economist at Capital Economics. He is now counting on a first drop next June, rather than in September. “Signs are growing of an imminent victory over inflation for the ECB. When will she dare to admit it herself? »asks Bert Colijn, economist at the ING bank, who anticipates “a first rate cut before summer”.

“Key rates will not fall below 3% in Europe” (Patrick Artus, Natixis)

As a reminder, the institution opted for a pause in its monetary tightening at the start of July 2022 to fight inflation, and, during its last meeting in October, decided to maintain its rates at the same level, namely 4 % for the main key rate remunerating deposits, reference for credit in the euro zone.

Slowing growth

A slowdown in the policy pursued for almost a year and a half which can be explained, on the one hand, by the slowdown in inflation and, on the other hand, by the weakening of economic growth and the slowdown in labor market that it causes. Thus, according to a quarterly report from the Organization for Economic Co-operation and Development (OECD) published in September, growth is expected at 0.6% for this year within the euro zone, a decline of 0.3 points. compared to June, weighed down by Germany which might fall into recession and Italy whose forecast is reduced by 0.4 points, to 0.8%.

However, despite the impact on growth, the ECB fears a new surge in energy prices once morest a backdrop of geopolitical tensions, particularly in the Middle East. She is also concerned regarding wage increases which might also fuel a rebound in prices. And the job market remains tight in Europe. Eurostat announced on Thursday a stable unemployment rate in October, at its historic low of 6.5% of the active population. “ It’s not yet time to declare victory » regarding the fight once morest inflation, warned the President of the ECB, Christine Lagarde, last week.

(With AFP)