Eurozone inflation falls to 9.2% in 2022 and confirms the downward trend

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The harmonized inflation of the euro countries closed the month of last December at 9.2%, almost one point below the previous month, to confirm the downward trend that had begun at the end of 2022 after almost a year and a half of increases caused by gas and energy prices due to the conflict in Ukraine. Is about one of the biggest drops in prices in the Eurozone since the data became available, caused above all by the containment of energy costs in the last quarter of the year, as the pressure on Russian gas has subsided and despite the fact that the indices of most of the partners are still high community.

This cut for the second consecutive month opens the door to a future relaxation in the upward trend in interest rates that the European Central Bank (ECB)although it is still a very high rate to not apply more increases in the next meetings, the first of which is the next February 2. In fact, the European monetary authorities have already warned that they will maintain their policy of raising interest rates as long as the inflation data does not fall clearly and tends towards the ideal 2% annual rate that is targeted in the medium and long term. Despite this, the sharp drop of nine tenths confirms the opinion that ‘but it has already happened’ in the Eurozone economy after almost a year of war and energy conflict, with a reform of the energy market in the offing and a change in progress in gas supply and renewable generation.

If the components of European inflation in December published this Friday by Eurostat provisionally are analyzed, the area that most influences the rise in prices continues to be energy, with a annual ratio of 25.7%which although it marks the difference with the others, represents a cut of almost ten points over the previous month and is the direct cause of the reduction that has been achieved at the end of the year.

As usually happens in each of the member countries of the euro, behind the pressure of energy, the prices that most affect inflation are the food, tobacco and alcoholwhich in the month of December have grown even two tenths over November and mark a rate of 13.8%. This strength of energy and food means that if they are excluded from the general data, the core inflation of the euro countries remains at 6.9%, a figure that is still too high to contain the rise in rates. In fact, core inflation in the EU stands at 5.2%, a figure that stops any hint of easing at the ECB.

under Russian dependency

As has been the case since the conflict began in Ukraine, the euro countries most dependent on Russian gas maintain much higher inflation rates than the rest, twice the average or more. It is the case of Slovakia, Latvia, Lithuania and Estonia, with data ranging from 15 to 20%. Between 10 and 11%, still above the average, are economies of the importance of Italy (12%), Belgium and the Netherlands, together with Austria and Slovenia, while the rest of the nineteen countries in the Eurozone at the end of last year remained in single digits and, for the most part, below the 9.2% average that has advanced Eurostat. When the data for January comes out, to that euro group must be added Croatia.

Spain maintains 5.6% harmonized inflation and confirms the lower pressure that energy prices have had on its economy compared to the rest of the Eurozone. They are 3.6 percentage points below the average, four less than in Germany and half of other euro economies, such as Italy or the Netherlands, something that is beneficial for export competitiveness. Even so, the pressure of food in our country means that these differences are not clearly noticeable in the structural data of underlying inflation.

The December cut in European prices removes the specter of the high differential that is being generated with inflation in USAwhich closed November at 7.1% and, in the absence of knowing next week the closing data for 2022, threatened to be double in Europe. It is significant that the Federal Reserve has not changed its upward rate policy -it will exceed 5%- despite the downward trend in the data, focused on stopping the escalation of prices until leaving them at 2%, even if this means putting the economy in a technical recession. This fact also puts pressure on the ECB, which has raised the price of money from 0 to 2.5% in less than a year, and which aims to reach 4% this year if prices are not clearly relaxed much more. although that could also lead to a recession.

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