Phasing out of energy support for consumers lifts headline inflation but core inflation continues to ease.
December’s EU CPI flash estimate of 2.9% year-on-year is broadly in line with expectations, following the 2.4% two-year low seen in November. Countries phasing out energy aid to consumers helped push the rate higher in December but looking at the core CPI figure, which excludes energy, we see that overall inflation continues to fall, from 3.6% in November to 3.4% in December. However, both inflation readings are still some way above the 2% target and with European Central Bank (ECB) policymakers signalling that inflation may go higher in the short term, this does complicate the timings that markets see for rate cuts from the ECB. A tempering of rate cut expectation euphoria will inevitably translate into soggier market performance and that is what we are seeing so far this year.
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