Eurozone Inflation Rises to 2.3%, Core Inflation Holds Steady at 2.7%

Eurozone Inflation Rises to 2.3%, Pressuring ECB Policy

The Eurozone’s annual inflation rate increased to 2.3% in November 2024, up from 2.0% in October, based on Eurostat’s flash estimates. This marks a modest acceleration in price growth, potentially complicating monetary policy decisions for the European Central Bank (ECB). While inflation remains relatively contained compared to peaks seen in prior years, the uptick suggests that the disinflationary trend may be leveling off.

What Drove November’s Inflation Increase?

The inflation increase reflects varied trends across key sectors. Services continued to show the highest annual inflation rate at 3.9%, marginally down from October’s 4.0%. Food, alcohol, and tobacco inflation edged lower to 2.8%, from 2.9% in the prior month. Meanwhile, non-energy industrial goods recorded a slight rise to 0.7% from 0.5%, indicating persistent price stickiness in some categories.

Energy prices played a significant role in dampening overall inflation, though the deflationary impact moderated. Energy prices fell by 1.9% annually, compared to a sharper 4.6% drop in October. This narrowing gap suggests that declining energy costs are exerting less downward pressure on inflation as global oil and gas markets stabilize.

Divergences Across Member States

Inflation levels varied significantly across the Eurozone. Belgium reported the highest inflation rate at 5.0%, while Germany and France, the bloc’s largest economies, saw more moderate rates of 2.4% and 1.7%, respectively. Notably, Italy experienced a marked increase, with inflation climbing to 1.6% from 1.0% in October. These disparities reflect differing economic conditions and energy dependencies within the bloc.

Impact on ECB Policy and EUR/USD

The inflation uptick could pose challenges for the ECB, which has signaled caution in easing monetary policy amid persistent underlying price pressures. Core inflation, which excludes volatile items like energy and food, remained stable at 2.7%, highlighting entrenched price growth in key areas. This development may delay potential rate cuts in 2024, as policymakers prioritize anchoring inflation expectations near the 2% target.

For the EUR/USD pair, the inflation data adds to near-term uncertainty. A more hawkish ECB stance could support the euro, particularly if U.S. Federal Reserve policy diverges toward a more accommodative path. However, continued softness in broader economic indicators, coupled with geopolitical uncertainties, may limit significant euro gains.

Market Outlook

In the short term, traders should watch for further data confirming the inflation trajectory and ECB policy signals. If energy prices stabilize and core inflation persists, a bullish case for the euro may emerge. However, persistent economic fragility across the bloc could weigh on EUR/USD sentiment, leading to choppy trading conditions.

More Information in our Economic Calendar.