Euro Area: Pace of decline in annual prices stable in December

Euro Area Inflation December 2020

Euro Area: Pace of decline in annual prices stable in December

Harmonized consumer prices fell 0.3% compared to the same period of the previous year in December, matching November’s decrease. Inflation thus remained below the European Central Bank’s target rate of near, but under, 2.0%. December’s drop was due a sharp fall in prices for energy and to somewhat lower prices for non-energy industrial goods. On the other hand, prices for services and for food, alcohol and tobacco rose.

On a monthly basis, harmonized prices rose 0.3% in December, contrasting November’s 0.2% drop. Core inflation, which excludes volatile energy and unprocessed foods prices, was stable at November’s 0.4% in December.

A complete set of data for harmonized inflation will be released on 20 January.

Commenting of the release, Bert Coljin, senior Eurozone economist at ING, stated:

“From here on, expect some downward pressure to reverse, which will push up inflation. The German VAT reduction ends, negative price effects from the oil price drop in early 2020 will fade out of the numbers, and services inflation later in the year is likely as social distancing becomes less of an issue.

In the medium term, higher unemployment and significant output gaps will keep a lid on inflation, which means that inflation expectations are unlikely to move much on the unwinding of previous downward inflationary pressures. This means that the European Central Bank shouldn’t be too concerned about higher price growth in the months ahead as underlying inflationary pressures remain weak for the medium term.”

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