European Inflation Rises in December, Pressuring ECB

The latest data on price trends suggest the European Central Bank (ECB) may adopt a more moderate approach to interest rate cuts moving forward. What did Christine Lagarde say, and what are analysts expecting?

Annual inflation in the eurozone rose to 2.4% in December, driven by a slight uptick in energy prices. This marks a continued rebound since hitting a three-year low of 1.7% in September 2024. The inflation rate is now above the ECB’s 2% target.

All of this has influenced the EUR/USD exchange rate for the worse, driving it down.

EUR/USD

Inflation Data

According to Eurostat, the December inflation rate was influenced by a 0.1% rise in energy prices, which had declined by 2.0% in November. Processed food, including tobacco and alcoholic beverages, increased by 2.7%, while services advanced by 4.0%.

Core inflation—excluding energy and food prices—remained steady at 2.7%, the same level recorded since October 2024.

Among the eurozone’s largest economies, Germany posted a 2.8% inflation rate in December, followed by France at 1.9%, Italy at 1.4%, Spain at 2.8%, and Portugal at 3.1%.

European Inflation Outlook and Projections

As was the case in the second half of 2024, inflation levels are drawing attention to the ECB’s potential response. Analysts expect the ECB to continue lowering interest rates but at a slower pace. Inflation had exceeded 10% at the end of 2022, but aggressive ECB measures succeeded in curbing that trend.

In 2024, the ECB began gradually reducing interest rates due to signs of economic fragility. Analysts predict the ECB will likely cut rates only once during the first half of 2025, with additional reductions anticipated later in the year.

Ignacio Teson

Economist and Financial Analyst

Ignacio Teson is an Economist and Financial Analyst. He has more than 7 years of experience in emerging markets. He worked as an analyst and market operator at brokerage firms in Argentina and Spain.