ECB President Christine Lagarde said that consumer inflation is gradually returning to the target level of 2%, but victory has not yet been won. Meanwhile, she warned that if investors misjudge the ECB's future steps, it could be counterproductive to fight inflation.
Preliminary data published by Eurostat showed that the eurozone annual inflation accelerated in December (for the first time since April). However, core inflation continued to decline and reached its lowest level since March 2022. According to the report, the consumer price index rose by 2.9% per year after rising by 2.4% per year in November. Economists had expected inflation to rise to 3.0% per annum. Meanwhile, on a monthly basis, the consumer price index increased by 0.2% compared with a 0.6% drop in November. Eurostat reported that the core consumer price index - energy, food, alcohol & tobacco - rose by 3.4% per year, as expected, after an increase of 3.6% per year in November.
Lagarde said it would be in the "late spring" when the ECB gets data from this year's collective wage agreements which could then provide clues about inflation prospects.
Meanwhile, Lagarde hinted that the ECB is likely to cut interest rates in the summer, but warned that the Central Bank's decisions depend on the data, and that there is still a level of uncertainty and some indicators that are not anchored at the level where we would like to see them.
Against the background of Lagarde's statements, money markets now expect a rate cut of 140 basis points by the end of the year, which is equivalent to five cuts of 0.25%, with a 60% chance of a sixth.