by Audrey Bismuth, Global Macro Researcher, La Française AM
In Europe, after several months of positive news (figures exceeding expectations), the preliminary consumer price index (CPI) surprisingly fell in November. Held back by energy prices, the eurozone CPI fell to 10.0% as compared to 10.6% in October. This was below the year-on-year forecast of 10.4%. However, excluding volatile factors (food, energy, alcohol and tobacco), prices remained unchanged over the month at 5.0%, a figure that falls in line with expectations.
Annual inflation rose in three eurozone countries (Slovenia, Slovakia and Finland) while dropping back in Germany (11.3%), Italy (12.5%), Spain (6.6%) and the Netherlands (11.2%). In France, prices remained stable at 7.1%.
These figures are similar to the US data for October (7.7% compared to 8.2% in September). This should confirm the slowdown in the pace of the Fed's rate hike at the next FOMC (Federal Open Market Committee) on 14 December with a hike of 50 basis points (bps), bringing key rates to between 4.25% and 4.50%.
However, in Europe, will a single statistic lead the European Central Bank to slow down monetary tightening to 50 bps during the committee meeting on 15 December, following two consecutive increases of 75 bps?
Despite this encouraging sign, we are not completely ruling out a 75-bps hike at the next Governing Council. The members most strongly opposed to higher inflation rates are worried about the knock-on effects and wage dynamics supported by a favourable labour market as well as the risk of destabilising inflation expectations. Last week, Isabel Schnabel, a highly influential member of the ECB's executive board, declared that "Data suggest limited room to slow hike pace". Elsewhere, on Monday, ECB President Christine Lagarde said, “I would like to see inflation having peaked in October, but I’m afraid that I would not go as far as that. There is too much uncertainty, particularly in one component, that is the pass-through in high energy costs at wholesale level into retail level, to assume that inflation has actually reached its peak. It would surprise me.”
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