Food prices have also risen noticeably recently. (Photo: Freepik, pvproductions)
Luxembourg – a bang at the start of the year: In Germany Inflation shot up yesterday unexpectedly sharp upward trend – by 0.4 to 2.6 percent compared to the same month last year. Will this further drive up inflation in the euro area? The figures from Eurostat come out at 11 a.m. (CET).
According to forecasts, euro inflation also rose in December – for the third time in a row. Prices have increased by 2.4 percent year-on-year according to data provider FactSet’s estimate dressed. In particular, increased energy and food costs are likely to be the cause.
Core inflation remains tough – price drivers in November
On the other hand, the experts expect the so-called core rate excluding food and energy to remain stable at 2.7 percent as in November. Core inflation more precisely captures price increases at the economic base – with it the gap to the ECB inflation target of 2 percent remains clear.
The service sector in particular is giving further impetus to inflation. So prices rose in this sector in November by 3.9 percent annually. Food and beverages also increased disproportionately (plus 2.7 percent), while energy prices fell (minus 2 percent).
ECB meeting in January – Analysts: Services inflation falling
The further inflation trend will be the Interest rate moves by the European Central Bank determine. After record inflation cooled down, the monetary authorities lowered the deposit interest rate to 3 percent in 4 steps in 2024. Markets and experts expect a fifth rate cut on January 30th.
ECB decision-makers are worried about service inflation, driven by rising wages. But the dynamics of service prices will weaken in 2025, some expect Analysts from the financial group Nomura – although in Germany this component increased in December.
Reductions in profits – consumer price forecast and ECB 2025
In an annual outlook, Nomura’s economists base their forecast on the diminishing power of suppliers to enforce higher prices on consumers. This then reduces inflationary pressure. Service providers would be forced to accept reductions in profit margins.
The central bank expects 2.4 percent inflation for 2024. If inflation continues to slow as hoped, the current ECB forecast of a price increase of 2.1 percent in 2025 would certainly be realistic – as well 4 more interest rate cuts and a key interest rate of around 2 percent from the middle of the year.