ECB Faces Rising Inflation and Uncertain Policy Path 

Eurozone Inflation Rises to 2.4% Amid Energy and Service Costs 

Inflation in the Eurozone accelerated in December, rising to 2.4% from 2.2% in November, in line with expectations, due to rising energy prices as well as services sector costs. The euro dipped 0.48% against the U.S. dollar, closing at $1.034. 

(Eurozone’s Inflation Chart, Source: Eurostat) 

(EUR/USD Daily Price Chart, Source: Trading View) 

Core inflation, a key indicator of the sustainability of price growth, remained stubbornly high. This could bolster arguments for the European Central Bank (ECB) to adopt a cautious approach in easing policy restrictions over the coming months. Supporting this cautious stance, a separate consumer survey by the ECB revealed rising near-term and medium-term inflation expectations. Projections for inflation three years ahead climbed to 2.4%, up from the previous survey’s 2.1% and exceeding the ECB’s target. 

While inflation has spiked upwards and gotten close to the 2 percent that the ECB has been targeting in recent times, the upcoming data can still be unstable. Nonetheless, a decline is expected in the longer to mid-term, even more so in the last half of the year in regard to the target set by the ECB. 

Last year, the interest rates were cut multiple times by the central bank indicating that inflation was almost within grasp. More easing policies are bound to be released but the pace as well as the time frames remain unknown for the time being. Investors are increasingly skeptical about rate cuts at every meeting through June, with a 50% chance that the ECB might skip a meeting during the first half of the year. 

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