European inflation decreased by winter

According to preliminary data from Eurostat, annual inflation in the euro area slowed down to 9.2% in December against 10.1% in November. The contribution of energy was still the highest (its cost increased by 25.7% year-on-year against 34.9% in November), food prices increased by 13.8% (13.6% a month earlier), manufactured goods – by 6.4% against 6.1%, services – by 4.4% against 4.2%. Core inflation (excluding energy and food), however, also continued to grow and amounted to 5.2% against 5% in November.

The rate of tightening of the ECB’s monetary policy depends on further price dynamics (in December, rates were raised immediately by 0.5 percentage points: for loans – up to 2.5%, for deposits – up to 2%, for margin loans – up to 2.75% ). Economists of the regulator predict that the recession in the euro area will be short (two winter quarters), and inflation will slow down to 6.3% (base – to 4.2%). At the end of the year, analysts polled by the ECB predict an inflation rate of 4.8%. “Due to the greater exposure of the euro area to energy shocks related to the consequences of the conflict in Ukraine, aggregate inflation in the currency bloc will be higher than in the United States, and core inflation will be lower due to less pronounced pressure on the labor market,” the ECB said in a review. . In the United States, we recall that after 4.8% inflation in 2022, according to a survey by the Reserve Bank of Philadelphia, by the end of 2023, it is expected to decline to 3%.

Goldman Sachs expects euro area GDP to increase by 0.6% this year (previously expected to decline by 0.1% yoy) and that the first quarter of 2023 will continue to grow by 0.1% qoq, and assume a stronger deceleration of inflation to 3.25% by the end of 2023, amid a sharp tightening of ECB policy in the coming months. “Energy inflation continues to slow down following the fall in gas prices. Gas has fallen in price from $3-4 thousand per 1 thousand cubic meters. m in the summer to about $700,” notes Anton Prokudin, chief macroeconomist of Ingosstrakh Investments Management Company, suggesting that with the ECB rate of only 2.5% and the recession in the euro area not yet reflected in the statistics, the regulator will continue to raise the rate and may raise it well above market expectations (recently expected peak at 3-3.5%). The situation with inflation in the eurozone is worse than in the US, and the ECB’s maximum rate could be higher than the Fed’s rate (its peak is expected at 5.25-5.5%), he says.

Tatyana Edovina