Inflation in the European single currency area, the euro, fell more than expected last month, but underlying price pressures have risen, meaning the European Central Bank is likely to continue raising interest rates in the coming months.
Data released by the European Union’s Statistical Office (Eurostat) showed this Friday that consumer price growth in the region, which expanded to 20 countries with Croatia joining on January 1, slowed to 9.2% in December from 10. 1% in the previous month. According to a Reuters poll, this figure was below expectations of a price increase of 9.7%.
However, this seemingly good data hides an unpleasant detail, as the main part of the decline was due to lower energy prices, while all major components of core inflation rose.
The inflation rate, which excludes food and energy price volatility, rose from 6.6% to 6.9%, while the more restrictive measure, which also excludes alcohol and tobacco prices, rose from 5% to 5.2 %.
Inflation has picked up in services and non-energy manufactured goods, which the European Central Bank is closely monitoring to assess continued price increases, raising concerns that higher prices will be harder to cope with than expected.
The problem is that the longer prices rise, the harder it is to curb as firms begin to adjust their pricing and wage policies, which in turn perpetuates inflation.
