July 20, 2024

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Eurozone inflation falls more than expected to 2.4%

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Inflation in the eurozone has fallen far more than expected to 2.4 per cent in November, the slowest annual pace since July 2021, providing some relief to consumers and fuelling hopes that interest rates could soon be cut.

The sharp drop in the rate from 2.9 per cent a month earlier adds to tensions between investors who hope rates will be cut soon and central bankers seeking to keep borrowing costs high until the biggest surge in inflation for a generation has definitively been tamed.

Falling energy prices and lower growth in food and services prices were the main factors behind the slowdown in the harmonised index of consumer prices, according to data published on Thursday by Eurostat, the EU’s statistics arm.

Economists polled by Reuters had expected a more modest slowdown to 2.7 per cent. The drop in inflation has prompted investors to bring forward their bets of when the European Central Bank could start cutting its deposit rate as early as next April.

The yield on Germany’s rate-sensitive two-year bonds fell 5.5 basis points to 2.79 per cent, its lowest level for almost six months. The euro extended its recent losses, falling 0.5 per cent against the US dollar to $1.092.

But ECB president Christine Lagarde warned this week it was “not the time to start declaring victory” in the push to bring inflation down to 2 per cent.

The slowdown in eurozone price growth from its peak of 10.6 per cent a year ago is expected to offer some respite to consumers, with wages rising faster than prices, boosting purchasing power.

However, the cost of living remains almost 20 per cent higher than before the inflation surge started three years ago.

“Falling inflation and a stagnant economy could justify ECB cuts as soon as the first quarter of next year in our view,” said Matthew Landon, a strategist at JPMorgan Private Bank. “It is looking more…

2023-11-30 05:53:28

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