Europe’s Inflation Rebounds After Months of Decline, Raising Fears of Delay in Interest Rate Cuts

FRANKFURT, Germany — Inflation plaguing Europe rose to 2.9 percent in December, rebounding after seven straight monthly declines as food prices rose and support for high energy bills ended in some countries. The rise in price levels fueled debate over how soon interest rate cuts could be expected from the European Central Bank.The figure released Friday was up from the 2.4 percent annual inflation recorded in November — but is well down from the peak of 10.6 percent in October 2022.The central bank president, Christine Lagarde, warned that inflation could tick up in coming months, taking a detour from its recent downward path. The bank has raised its benchmark interest rate to a record-high 4 percent and says it will keep it there as long as necessary to push inflation down to its goal of 2 percent considered best for the economy.The faster-than-expected fall in inflation over the last months of 2023 had led some analysts to predict the central bank for the 20 European Union countries that use the euro currency would start cutting interest rates as early as March.The December rebound, however, was grist for analysts who predict that rates wouldn’t start to come down until June.“The increase serves as a reminder that interest rate cuts in the first quarter are unlikely, but this shouldn’t dispel expectations of cuts later in the year,” said the senior eurozone economist at ING bank, Bert Colijn.Views differed on the significance of the higher inflation number. December’s increase was a “just a blip” that would be reversed in January, said the deputy chief eurozone economist at Capital Economics, Jack Allen-Reynolds. He foresees a first rate cut in April.Inflation in December got a boost from the end of energy subsidies in Germany and France that had lowered prices a year ago.Core inflation, which excludes volatile fuel and food prices, eased to 3.4 percent from 3.6 percent in November, according to European Union statistics agency Eurostat. The figure is closely watched by the central bank.Food prices have fallen from painful double digits in several months last year, but still increased by an annual 6.1 percent in December.Higher food costs led global supermarket chain Carrefour to announce this week that it will stop selling PepsiCo products in its stores in France, Belgium, Spain, and Italy. The French chain pointed to price increases for popular items like Lay’s potato chips, Quaker Oats, Lipton tea, and Pepsi soda.Europe’s central bank and peer institutions around the world have rapidly raised interest rates to fight inflation. They work by raising the cost of borrowing for consumer purchases, particularly of houses and apartments, and for business investment in new offices and factories.That lowers demand for goods and relieves pressure on prices — but it also can limit growth at a time when it’s in short supply in Europe. The economy shrank 0.1 percent in the July-to-September quarter.Inflation itself, however, has been a key challenge to economic growth because it robs consumers of purchasing power. Europe’s central bank said raising rates quickly was the best way to get it under control and avoid even more drastic measures later.Officials at America’s Federal Reserve also stressed the importance of keeping rates high until inflation is “clearly moving down,” according to minutes, released Wednesday, of their December 12 to 13 meeting. The Fed has signaled three rate cuts this year.American consumer prices were up 3.1 percent in November from a year earlier.Associated Press

Europe’s Inflation Rebounds After Months of Decline, Raising Fears of Delay in Interest Rate Cuts

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