Lower energy prices helped lower inflation in Europe last month, the European Commission reported on Friday, but many prices are still rising at a rapid pace and policymakers have given little indication that they intend to halt planned rate hikes.
Consumer prices in countries whose currency is the euro rose 9.2 percent year on year in December, compared to double-digit levels of 10.1 percent in November and 10.6 percent in October.
Drops in inflation reported this week in France, Germany and Spain raised hopes that the relentless rise across the continent may finally have peaked. But several influential voices urged caution, noting that while so-called headline inflation has fallen, core inflation, which erases volatile food and energy prices, has not shown the same decline. In December, core inflation in the euro zone even rose to 5.2 percent, from 5 percent the previous month.
Europe has benefited from a period of mild weather, which has reduced energy demand, particularly for natural gas used to power much of the continent’s heating infrastructure. Several governments have also offered subsidies to curb the painfully high energy prices consumers pay. The drop in German inflation, to 9.6 percent in December from 11.3 percent the month before, was partly due to one-off aid to help households pay their energy bills, the government’s statistics office said.
The data showed that energy prices in the Eurozone rose by 25.7 percent year on year in December from 41.5 percent in October.
“Europe is currently very lucky with the weather,” said Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics. He added that the government’s energy aid had placed a “wedge between reality and data”.
“It’s a price check,” he said, and “once you take that away, it’s not so obvious that inflation is so benign.”
Almost all eurozone countries showed a decline in their key inflation rates in December, including France (6.7 percent, up from 7.1 percent in November), Italy (12.3 percent, up from 12.6 percent), Spain ( 5.6 percent, versus 6.7 percent) and the Netherlands (11 percent, from 11.3 percent).
The European Central Bank, which has an inflation target of 2 percent on an annual basis, has already indicated that it is likely to raise interest rates by half a point in February. Christine Lagarde, the bank’s president, said last month that she expected interest rates to rise “significantly further as inflation remains far too high and is expected to stay above our target for too long.”
December’s data, which show declining headline inflation but continued underlying price pressures, is likely to spark “tense negotiations among policymakers in the coming months,” noted Mr. Vistesen up after the figures were released.
The Federal Reserve, the US central bank, is also expected to raise interest rates further.
This week, Gita Gopinath, first deputy director of the International Monetary Fund, told the Financial Times that the Fed should “stay on track” with its planned hikes.
“I think it’s clear we haven’t turned inflation around yet,” she said. At the same time, the fund also predicts that a third of the global economy will experience a recession this year.
