Eurozone’s inflation has dropped – so will interest rates go down in 2024?

The Eurozone announced its final inflation figures for the year 2023 – the November 2023 core inflation rate.

According to Eurostat (part of the European Commission), last month’s inflation rate was 2.4 percent, down significantly from October’s 2.9 percent and closer to the ECB’s long-time target inflation rate of two percent.

The euro area annual inflation rate was 2.4 percent in November 2023, down from 2.9 percent in October. A year earlier, the rate was 10.1 percent. European Union annual inflation was 3.1 percent in November 2023, down from 3.6 percent in October. A year earlier, the rate was 11.1 percent.”

This is not be confused with the European Union (EU) itself, comprised only of the EU member states (excluding, for example, Russia and Belarus, Norway and Iceland). The EU itself reported inflation rates higher than that of Europe: 3.1 percent for November 2023 (instead of 2.4), down from 3.6 percent in October 2023 (which was 2.9 percent for the Euro area as a whole).

Disinflation for EU’s biggest economy

Germany in particular showed a marked decrease in inflation, falling a whopping nine percent YoY from a crippling 11.3 percent headline inflation in November 2022 to just 2.3 percent in November 2023.

EU ahead of the disinflation game

This marks the EU as ahead of the game in terms of its goals and forecasts. On December 7^th, the European Central Bank had announced that it expected headline HICP inflation to decrease to 2.7 percent in 2024:

Overall, with medium-term inflation expectations assessed to remain anchored at the ECB’s 2% inflation target, headline HICP inflation is expected to decrease from 5.4% in 2023 to an average of 2.7% in 2024, 2.1% in 2025 and 1.9% in 2026. Compared with the September 2023 projections, HICP inflation has been revised down for 2023 and 2024, mainly owing to lower-than-expected recent data outturns and lower assumptions for energy commodity prices”

Looking further into the inflation figures

In an accompanying news article on its website, Eurostat provided some further context on the inflation figures – which it largely attributed to plummeting oil prices – with their roundup of December 2023. In it, they named December a ‘mixed economic picture’ with easing inflation, but declining industrial output:

There was a further decline in overall inflation in November 2023, reaching its lowest rate since August 2021. This decrease is primarily attributed to falling energy prices. Simultaneously, labour market dynamics add another important layer to the EU economic picture. While the EU labour market maintained historically low unemployment levels in October 2023, this robust picture is nuanced by shifts in other labour market indicators. For the first time since Q1 2021, there was a (marginal) decrease in the employment rate for the first time since Q2 2020. EU economic sentiment mirrors these complex dynamics, continuing on an upward trajectory in November 2023, yet still remaining significantly below its pre-pandemic level.”

No word yet on dropping interest rates

Those who were hoping for official word on whether or not the ECB would be dropping interest rates in 2024, following these positive figures, would be disappointed. The release, like Bank of Japan’s rates decision earlier today, was noticeably silent on whether or not interest rates would be cut next year.

This silence is a markedly hawkish stance, in the face of growing widespread speculation that the world will see multiple substantial rate cuts in 2024.

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