Eurozone inflation falls to 10%.

As the year comes to a close, the European Central Bank’s (ECB) efforts to stem the rising tide of inflation in the eurozone appear to be paying off. Preliminary data from Eurostat, the European Union’s statistical office, shows that inflation is pegged at 10%, down from the 10.6% reported in October of this year.

Despite the slower pace, key aspects of the readings show that the level of inflation is still significantly higher for a wide range of consumer products. Energy is expected to have the highest inflation rate, at 34.9 percent on an annual basis. However, this compares to 41.5 percent in October.

In addition to energy, food, alcohol, and tobacco saw a 13.6 percent increase in inflation, up from 13.1 percent in October, while non-energy industrial goods grew 6.1 percent with little change from October. The services sector also saw a slight decline to 4.2 percent, down from 4.3 percent in October.

The current decline in inflation has begun to fuel some speculation about the ECB’s next steps in raising interest rates.

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The drop in headline HICP inflation from 10.6% in October to 10.0% in November was the first decline since June 2021 and was larger than originally expected“, said Andrew Kenningham, chief economist for Europe at Capital Economics in a note, adding “We wouldn’t be surprised to see the headline inflation rate rise again in December or January given the volatility of the monthly numbers, but there is little doubt that it will fall quickly next year.

Inflation and rising interest rates in the eurozone

The cost of living crisis has been a major challenge for the region this year as it attempts to bring down energy costs, fueled by the ongoing war between Russia and Ukraine earlier in the year. Since the beginning of the year, the European Central Bank has raised interest rates three times, with the largest increase amounting to 75 basis points.

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European officials, including Edward Scicluna, the governor of the Bank of Malta, had predicted that the inflationary growth rate was already peaking. The figures are similar to the related inflation rates recorded in the United States earlier this month.

Despite these impressive numbers, economists are somewhat divided on whether or not this is the right time for the ECB to reduce its rate hikes. While some believe that the economy should be allowed to react positively to previous rate hikes, others believe that inflation is still very high and that interest rates should be pushed.

While speculation is rife, ECB President Christine Lagarde reaffirmed the bank’s readiness to continue to implement appropriate measures until inflation reaches the expected 2% level.

We plan to raise rates further to the levels necessary to return inflation to our medium-term objective of 2 percent in due course” she told European lawmakers.

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