Inflation fell much more than expected in Eurozone in December, although core inflation continued to rise, meaning the ECB will continue to raise interest rates in the coming months.

The eurozone consumer price index, now expanded to 20 countries following Croatia’s accession on January 1, slowed to 9.2% from 10.1% in November and 9.7% forecast by analysts in a Reuters poll, according to Eurostat.

AT Hellas the first reading of inflation data showed a slowdown to 7.6% from 8.8% in November. Recall that in November, inflation in our country was estimated by ELSTAT at 8.5% (in its first assessment, Eurostat gave an increase of 9%). However, the decrease in the growth rate of the index this month is accompanied by a significant increase in prices for essential goods, and especially for food products: for dairy products – 25.3%, oils – 20.4%, bread – 18.7%, meat – 16. 7%, meat – 12.6%. % in vegetables.

The rise in prices is also important for energy, although the pace of growth has slowed after 12 months since the start of the rally. For natural gas, the growth was 27.8%, for solid fuels – 23.2%, and the price of electricity fell to -5.3%.

However, it should be emphasized that much of the de-escalation of inflation in the euro area was caused by the fall in energy prices with all its key parameters. structural inflation show further growth. Inflation excluding the cost of energy and food rose from 6.6% to 6.9%, and a narrower scale excluding the price of alcohol and tobacco rose from 5% to 5.2%.

Inflation in services and manufactured goods, with the exception of energy, which are closely monitored by the ECB, accelerated accordingly, raising fears that price increases would be much more sustainable than previously thought.

Another concern is that core inflation has eased thanks to temporary measures, including government subsidies, many of which are expected to end in January, when inflation is expected to pick up again.

But even if price volatility continues in the coming months, inflation appears to have peaked, and the key question now is how quickly it will return to its 2% target.

The problem is not that the longer consumer prices remain at higher levels, the harder it is to tame inflation as businesses begin to adjust their pricing and wages, further fueling inflation and creating a vicious circle.

For this reason, the ECB raised interest rates by 2.5% last year following the actions of the US central bank, while at its February and March meetings it committed to raise interest rates by another 50 basis points. But even with such an aggressive stance, inflation is not expected to return to 2% until the second half of 2025, according to new ECB forecasts that have proven overly optimistic over the past two years.