Eurozone inflation drops for first time since mid 2021 and may have ‘passed its peak’

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Prices across the 19 countries using the euro climbed 10 per cent over the year to November, down from a rate of 10.6 per cent in October, according to Eurostat (Photo by Drew Angerer/Getty Images)

Inflation in Europe fell for the first time since mid 2021 and may have passed its peak, fresh figures out today reveal.

Prices across the 19 countries using the euro climbed 10 per cent over the year to November, down from a rate of 10.6 per cent in October, according to Eurostat.

The drop was larger than analysts expected, raising expectations that the European Central Bank (ECB) could slow its aggressive interest rate hike cycle.

Before the figures were released, most experts were pencilling in a third successive 75 basis point rate rise at the ECB’s meeting next month.

However, softening price pressures “supports ECB doves’ calls for a slower pace of rate hikes going forward,” Melanie Debono, senior Europe economist at Pantheon Macroeconomics, said.

President Christine Lagarde and the rest of the ECB’s governing council have been forced to pivot from years of ultra stimulative policy to tightening financial conditions due to inflation hitting record highs this year.

UK inflation is below Germany and Italy.
Source: Eurostat, ONS and US Labor Department

Until this year, interest rates in Europe had been negative since 2013. The ECB signed off its first rate rise since 2011 in the summer and has lifted borrowing costs 75 basis points two times in a row.

That aggressive hiking campaign has been mirrored by the US Federal Reserve and Bank of England, who also have been jolted into reshaping policy by soaring prices. The ECB has lagged behind the pair, with the Bank moving fastest by launching its first rate rise in December 2021.

Analysts reckon the eurozone economy will suffer a tough recession over the next year, driven by rising energy caused by Russia’s invasion of Ukraine prices cooling business activity.

Europe, particularly Germany and Italy, have for years relied on cheap Kremlin gas to power its economy. 

However, Moscow has sucked supplies out of the bloc, forcing countries to find alternative providers and sending prices on an upward spiral.

Europe has filled nearly all its gas storage, easing fears of energy rationing this winter. 

Today’s figures indicated energy price inflation is dropping quickly, sparking hopes “headline inflation may now be past its peak,” Andrew Kenningham, chief Europe economist at Capital Economics, said.

The euro climbed around 0.33 per cent against the US dollar on the news.