Eurozone inflation rose to 2.3% year-on-year in November, up from 2% in October, meeting market expectations. The increase aligns with a narrowing deflationary impact of energy prices. Despite the annual rise, consumer prices fell 0.3% from October, marking the steepest monthly decline since January 2024.
Energy prices dropped 1.9% year-on-year but rose 0.6% monthly, reflecting a fading base effect from last year’s spikes. Excluding energy, annual inflation remained at 2.7%, while core inflation slightly increased to 2.8%. Monthly core inflation dropped 0.4%, and services prices, though up 3.9% year-on-year, fell 0.9% from October. These trends suggest disinflationary forces remain intact.
The data supports expectations for the ECB to lower interest rates in December, particularly as eurozone economic activity weakens. Kyle Chapman, a forex market analyst, noted that markets now expect a 25 basis point cut in December. He added, “There’s no urgency to frontload cuts as the economy isn’t collapsing, and the neutral rate remains uncertain.”
Germany Faces Retail Sales Decline
Germany, the eurozone’s largest economy, experienced its sharpest retail sales decline in two years. Retail sales fell 1.5% month-on-month in October, far exceeding the expected 0.3% drop. This followed a revised 1.6% increase in September.
The decline reflects a worsening consumer outlook and highlights broader economic fragility. Meanwhile, the eurozone Composite Purchasing Managers’ Index (PMI) fell to 48.1 in November, signaling the sharpest contraction in private sector activity since January.
For the first time in 10 months, the services sector slipped into contraction, with its PMI dropping to 49.2. The manufacturing sector remained in a prolonged slump.
Market Reactions
Financial markets reacted modestly to the data. The euro held steady at $1.0560 against the US dollar, while eurozone sovereign bond yields stayed unchanged. Germany’s benchmark 10-year Bund yield hovered at 2.12%, its lowest in nearly two months.
Equity markets remained flat, with the Euro STOXX 50 index unchanged after a 0.4% gain on Thursday. Blue-chip stocks showed mixed performance, with Airbus SE rising 1.3%, Schneider Electric SE gaining 1%, and LVMH up 0.6%. Telefonica and Banco Santander, however, declined 1.5% and 1.2%, respectively.
The ECB’s rate-cut plans will likely remain on track, with inflation trends providing room for easing monetary policy amid a weakening economic outlook.