The annual Euro Area Inflation climbed for the third consecutive month, reaching 2.4% in December 2024—the highest level since July. This was up from 2.2% in November and aligned with market expectations. The rise was largely driven by base effects, as last year’s sharp declines in energy prices are no longer reflected in annual calculations.

Energy Prices and Services Drive Inflation

A key contributor to the increase Euro Area Inflation was energy prices, which rebounded by 0.1% after a 2% decline in November, marking their first positive change since July. Additionally, inflation in the services sector edged higher to 4% from 3.9%, indicating continued price pressures in consumer-facing industries.

Food Inflation Sees Mixed Trends

Inflation in food, alcohol, and tobacco slowed slightly overall. While processed food, alcohol, and tobacco prices rose at a slightly faster rate (2.9% vs. 2.8%), the increase was offset by a noticeable slowdown in unprocessed food inflation (1.6% vs. 2.3%). This suggests some easing in food price pressures, even as other sectors saw rising costs.

Read More: Euro Area Manufacturing PMI

Inflation Outlook and ECB Expectations

Inflation trends varied across major Eurozone economies, with Germany (2.8% vs. 2.4%) and France (1.8% vs. 1.7%) experiencing increases, while Italy saw a slight slowdown (1.4% vs. 1.5%). Meanwhile, core inflation remained steady at 2.7%. The European Central Bank (ECB) maintains its forecast that inflation will gradually decline to its 2% target by the end of the year, signaling potential stability ahead.

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