Euro Zone Inflation Hits 2% in December, Aligning with Forecasts
Downtown Amsterdam, a hub of economic activity, has been a focal point for investors and economists alike, as the euro zone’s inflation rate has been closely watched in recent months. Jacobh | E+ | Getty Images
Euro zone inflation stood at 2% in December, according to flash data from Eurostat, meeting the expectations of economists polled by Reuters. This rate is in line with the European Central Bank’s (ECB) target, and it marks a slight decrease from the 2.1% inflation rate recorded in November.
Core Inflation and Services Inflation
Core inflation, which excludes more volatile energy, food, alcohol, and tobacco prices, stood at 2.3% in the year to December, down from 2.4% in November. The annual rate of services inflation also cooled to 3.4%, compared with 3.5% in November. These numbers indicate a stabilization of inflation rates, which could have implications for the ECB’s monetary policy decisions.
The ECB held its key deposit facility rate at 2% for the fourth consecutive time in December, having last cut rates in June. This decision was part of a rate-cutting cycle that has brought rates down from 2024’s record high of 4%. Top ECB board members have suggested that the easing cycle is close to, or at its end, although the central bank has emphasized a meeting-by-meeting and data-dependent approach to rate setting.
Market Reaction and Expert Insights
The euro and Stoxx 600 were unchanged on Wednesday following the data release, although the inflation rate returning to the ECB’s target could signal further rate cuts ahead. According to Michael Field, chief equity strategist at Morningstar, “The move should please equity markets, as it gives the ECB yet another reason to cut interest rates further in 2026. That said, inflation has been hovering either side of the 2% level for most of last year, so today’s move is minor, but a positive, nonetheless.” Field also noted that central bankers must balance stimulating the economy with controlling inflation, and with low and steady inflation, they may be able to provide more stimulus sooner rather than later.
Conclusion and Further Reading
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