Eurozone inflation rose from 2% in October to 2.3% in November, flash data from statistics agency Eurostat showed on Friday, above the European Central Bank’s 2% target.
The figure, in line with economists’ expectations, adds weight to the likelihood of a cautious interest rate cut at the ECB’s upcoming meeting on December 12.
European stocks were mixed on Friday as investors digested the latest eurozone inflation data and its implications for monetary policy. The pan-European Stoxx 600 index was flat by mid-morning, with sectors and major bourses showing varied performance.
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France’s CAC 40 rose by 0.1%, despite ongoing political uncertainties. This follows a notable shift in the country’s risk premium, which has now drawn level with Greece’s for the first time, reflecting market concerns.
In France, preliminary data from the National Institute of Statistics and Economic Studies showed a slight rise in the country’s harmonised inflation rate, which climbed to 1.7% in November from 1.6% in October. The data highlights persistent inflationary pressures across the region as policymakers balance growth and price stability.
As markets react to inflation figures, the focus now turns to the European Central Bank’s policy response and the potential for a measured shift in its approach to rate adjustments in December.
Euro area inflation in November was led by services at 3.9% (down from 4.0% in October), followed by food, alcohol, and tobacco at 2.8% (down from 2.9%). Non-energy industrial goods rose to 0.7% (from 0.5%), while energy remained negative at -1.9% (up from -4.6%).
Harry Woolman, associate at Validus Risk Management, said: “This morning’s inflation prints for the eurozone showed preliminary, year-on-year inflation came in at 2.3% for November, in line with expectations. However, core inflation, often the bugbear of central bankers, came in under expectations at 2.7%.”
Woolman noted that while a 50 basis points rate cut remains on the table, its likelihood has diminished from 75% last week to 57% today. He added that the easing pressure for an aggressive cut has bolstered the euro, pushing it from recent lows near 1.04 to close to 1.06 against the dollar.
However, the broader outlook for the eurozone remains fragile. “French political uncertainty, geopolitical tensions, and underwhelming economic performance are key drivers of near-term sentiment,” Woolman warned. “We expect any short-term boost to the common currency to remain limited.”
Richard Flax, CIO at Moneyfarm, highlighted the complexities facing central banks as inflationary pressures persist. “Eurozone inflation rose by 2.3% in November, matching market expectations and marking an uptick from 2% in October. This increase, largely driven by base effects, once again propels inflation beyond the ECB’s 2% target,” Flax explained. While the market expects the ECB to reduce interest rates by 0.25 percentage points to 3%—the fourth cut this year—weak macroeconomic data, particularly in Germany, might justify a more aggressive approach. Flax added that global uncertainties, including potential tariffs on Chinese imports under the incoming Trump administration, complicate the landscape, making it challenging for central banks to balance inflation control with economic stability.
With the ECB navigating economic and political pressures, all eyes are on its upcoming policy decision, which will set the tone for the eurozone’s economic trajectory heading into 2025.
