HICP inflation: an expected pick up in December
Nadia Gharbi, Senior Economist Pictet Wealth Management.
- Eurostat’s flash estimate showed that euro area headline inflation rebounded to 2.9% y-o-y in December from 2.4% the previous month, in line with expectations. Core inflation eased to 3.4% in December from 3.6% in November, also in line with expectations.
- While a full breakdown of the data will not be published until 17 January, the information published today by Eurostat revealed that energy base effects were the main driver of the December pick-up in headline inflation, while food and non energy industrial goods inflation eased somewhat. Services inflation was stable at 4.0% in December.
- December’s rebound in the headline number was largely expected and does not change our view that 2024 will all be about the “last mile” in the inflation fight. Having already slowed significantly, the question is whether second-round effects will make it more difficult to achieve further progress. Labour market data will be the main focus. We continue to believe that wage growth, a lagging indicator, has peaked in the euro area as both job gains and consumer price inflation slow (see our 2024 euro area outlook for more details). We continue to see gradual disinflation in the euro area, with both core and headline inflation averaging 2.4% in 2024, down from 4.9% and 5.4%, respectively, in 2023.
- Apart from HICP data, final PMI numbers for December were published yesterday. After an encouraging 1.1 point increase in November, the preliminary composite PMI report for the euro area had shown a 0.6 point drop in December from the previous month. However, the final PMI figure for December shows no change. This still leaves the composite PMI at a weak level (47.6), consistent with our view of stagnant growth.
- The ECB will still need more data to feel confident about altering its monetary policy. We continue to see the first rate cut in June, with a risk of an earlier move in April.
