Inflation across the eurozone fell by more than expected in November amid growing concerns about the strength of national economies after the sharpest rise in borrowing costs since the creation of the single currency.
Consumer prices across the 20-country bloc increased at an annual rate of 2.4%, down from 2.9% in October, according to figures from the EU statistical agency Eurostat. Economists polled by Reuters had forecast a higher reading of 2.7% for the month.
Falling energy prices and weaker increases in the cost of buying food, alcohol and tobacco dragged down the headline rate to within striking distance of the European Central Bank’s 2% inflation target, increasing speculation about the timing of interest rate cuts.
In its flash estimate for November, Eurostat figures showed a monthly increase in consumer prices in only two eurozone countries – Austria and Slovakia – amid easing pressure on living standards across the bloc.
Meanwhile, there are concerns about economic growth across the eurozone weakening further as households and businesses come under pressure from high living costs and elevated interest rates.
Updated figures for the French economy on Thursday showed gross domestic product fell by 0.1% in the three months to September – below the 0.1% rise first estimated, and down from a 0.6% expansion in the second quarter.
Germany is expected to be the worst-performing developed country this year, according to forecasts released this week by the Organisation for Economic Cooperation and Development. Europe’s largest economy is on track to shrink by 0.1%, said the OECD.
The latest figures show inflation fell to 2.3% in Germany in November, down from an annual rate of 3% in October, well below market expectations after a sharp fall in energy prices. French inflation fell from 4.5% to 3.8%, while in Italy the rate dropped to 0.7% from 1.8% a month earlier.
The snapshot stands in stark contrast to the UK, where the latest available figures show inflation fell to 4.6% in October, sticking at the highest rate in the G7 group of advanced economies.
Economists said cooling inflation and sluggish economic growth across the eurozone could force the ECB to start cutting interest rates again.
Highlighting the risks to national economies from a sustained higher cost of borrowing, Fabio Panetta, the new governor of the Bank of Italy, warned that the ECB must not cause “unnecessary damage” to the economy and financial stability.
A member of the ECB’s governing council, Panetta predicted that the eurozone economy would remain weak into the new year. “We need to avoid unnecessary damage to economic activity and risks to financial stability, which would ultimately jeopardise price stability,” he said.
The ECB left its key deposit rate, which is paid on commercial bank deposits, at 4% in October, having lifted borrowing costs from -0.5% four years ago in response to the inflation shock after the Covid pandemic and the surge in energy prices following Russia’s invasion of Ukraine.
On Monday, the ECB president, Christine Lagarde, said now was “not the time to start declaring victory” as the risk of persistent inflationary pressures remained. The central bank expects inflation will return to above 3% next year, before hitting its 2% target in late 2025, partly due to resilience in wage growth.
Figures on Thursday showed unemployment across the eurozone held steady at a record-low 6.5%, despite the slowdown in economic growth, with joblessness levels in France, Germany and Spain unchanged.
However, investors bet the ECB could become the first major central bank to cut interest rates next year amid a worsening growth slowdown, pushing the euro down by about 0.5% against the US dollar on global currency markets to trade at about $1.09.
Andrew Kenningham, the chief Europe economist at the consultancy Capital Economics, said it had become “increasingly untenable” for the ECB to claim it was not even thinking about interest rate cuts.
“We are now pencilling in a first cut for next June, rather than September,” he said. “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.”
