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Eurozone inflation falls more than expected to 2.4%

EU inflation: Economic Dialogue, Christian Lindner and Christine Lagarde
Core inflation, which excludes volatile food and energy prices, fell from 4.2% to 3.6%, ahead of estimates of a drop to 3.9%. (Imago, Imago)

Eurozone inflation has dropped more sharply than expected this month, as falling energy prices ease the cost of living crisis.

According to statistics body Eurostat, the annual inflation rate came in at 2.4% in November across the single currency bloc, down from 2.9% the month before. It was the slowest annual pace since July 2021.

Economists had forecast that the inflation rate would fall to 2.7%.

Core inflation, which excludes volatile food and energy prices, fell from 4.2% to 3.6%, ahead of estimates of a drop to 3.9%.

Food, alcohol and tobacco is expected to have the highest annual rate during the month at 6.9%, compared with 7.4% previously. Service inflation is estimated to have eased to 4.0%, down from 4.6% in October, while industrial goods price inflation fell to 2.9%, from 3.5%.

Energy prices continued to tumble on a year-on-year basis, down 11.5% compared with November last year and 11.2% in October.

Economists are now expecting the European Central Bank (ECB) to start cutting interest rates in June rather than September.

Andrew Kenningham, chief Europe economist at Capital Economics, said it is “ becoming increasingly untenable for policymakers to claim that they are not even thinking about rate cuts”.

He said: "Policymakers won’t want to declare victory prematurely and are sure to reiterate at December’s ECB meeting that it is far too early to cut rates.

"Moreover, inflation is likely to rebound to at least 3% in December as energy inflation rises. And the labour market is still very tight by pre-pandemic standards.

Read more: European stocks up as EU inflation set to slow further

"Nonetheless, with headline and core inflation likely to trend down in the new year it will hard for the ECB to ignore the extent to which the inflationary tide is turning.

"With near-recession conditions set to drag on and inflation likely to be close to 2% by the middle of 2024, we now think the case for the Bank to ease up on monetary policy by then will be too strong for the ECB to resist.

Meanwhile, Mathieu Savary, chief European strategist at BCA Research, said: “The Eurozone’s core CPI is falling even faster than market participants expected. Traders will be tempted to bring their expectations of the first rate cut forward, but this would be a mistake.

"The ECB is too concerned by the tightness of the labour market, which implies later rather than sooner rate cuts.”

The euro extended its losses after the figures were published on Thursday, trading 0.5% lower against the dollar at $1.092 on the back of the news.

The currency had already lost ground ahead of the data after separate figures showed French inflation fell more than forecast.

Watch: How does inflation affect interest rates?

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