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Eurozone Inflation Sharply Slowed in December as Energy Prices Dropped

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By Xavier Fontdegloria

Eurozone inflation eased by more than expected in December, reaching a four-month low, driven by moderating energy prices and action from governments to cushion households from rising utility bills.

Consumer prices rose 9.2% on year in December, easing from a 10.1% increase in November and the lowest level since August, according to preliminary data from the European Union’s statistics agency Eurostat published Friday.

The reading is below economists’ forecasts, who expected a 9.7% inflation rate in a poll by The Wall Street Journal.

Inflation reached 10.6% in October, the highest level since records began in 1997, but has fallen since then driven by lower energy prices amid unusually warm weather in most of Europe. Moreover, some countries such as Germany implemented in December a one-off subsidy for household energy bills, pushing down headline inflation further.

Energy prices in the eurozone moderated significantly in December, but were still 25.7% higher than the same month a year earlier, compared with a 34.9% increase in November. Food, alcohol and tobacco price inflation accelerated slightly to 13.8% from 13.6% a month earlier.

However, there were signs that price pressures persisted at year-end. The core inflation rate–which strips out the more volatile categories of food and energy–rose to 5.2% from 5.0% in November.

The European Central Bank raised interest rates at an unprecedented pace in 2022 in order to tame high inflation. Despite the recent slowdown in inflation, the bank said it expects to increase rates further in 2023 to ensure inflation falls back to its 2% medium-term target.

Write to Xavier Fontdegloria at [email protected]

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