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Eurozone Inflation Eases on Lower Energy Prices

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Lower energy prices helped to push inflation in Europe lower last month, the European Commission reported on Friday, but many prices are still rising at a brisk pace and policymakers have given little indication that they plan to halt planned rate of interest increases.

Consumer prices within the countries that use the euro as their currency rose at an annual rate of 9.2 percent in December, down from the double-digit levels of 10.1 percent in November and 10.6 percent in October.

Declines in inflation reported this week in France, Germany and Spain sparked hopes that the relentless rise across the continent could have finally peaked. But several influential voices urged caution, noting that while the so-called headline rate of inflation has eased, core inflation, which strips out volatile food and energy prices, has not shown the identical drop. Actually, for December, the eurozone’s core rate of inflation rose to five.2 percent, from 5 percent the month before.

Europe has benefited from a streak of mild weather, which has lowered the demand for energy, particularly the natural gas used to power much of the continent’s heating infrastructure. Several governments have also offered subsidies to blunt the painfully high energy prices that buyers pay. The drop in Germany’s inflation rate, to 9.6 percent in December from 11.3 percent the month before, was partly on account of one-time assistance to assist households pay their energy bills, in accordance with the federal government’s statistics office.

The information showed that energy prices within the eurozone rose at an annual rate of 25.7 percent in December, down from as high as 41.5 percent in October.

“Europe may be very lucky for the time being with the weather,” said Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics. He added that government energy relief had inserted a “wedge between reality and the information.”

“It’s a price control,” he said, and “once you’re taking out that, it’s not as clear that inflation is that benign.”

Nearly all eurozone countries marked a decline of their most important inflation rate in December, including France (6.7 percent, from 7.1 percent in November), Italy (12.3 percent, from 12.6 percent), Spain (5.6 percent, from 6.7 percent) and the Netherlands (11 percent, from 11.3 percent).

The European Central Bank, which has a goal of two percent annual inflation, has already indicated that it’s more likely to raise rates of interest half a degree in February. Christine Lagarde, the bank’s president, said last month that she expected rates of interest to rise “significantly further, because inflation stays far too high and is projected to remain above our goal for too long.”

The December data, showing easing overall inflation but persistent underlying price pressure, will probably stoke “tense negotiations amongst policymakers in the subsequent few months” noted Mr. Vistesen after the numbers were released.

The Federal Reserve, the U.S. central bank, can be expected to proceed raising rates.

This week, Gita Gopinath, first deputy managing director of the International Monetary Fund, told the Financial Times that the Fed should “stay the course” with its planned increases.

“I believe it’s clear that we haven’t turned the corner yet on inflation,” she said. At the identical time, the fund has also projected that a 3rd of the world economy will face recession this yr.

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