Acceleration In Eurozone Inflation Signals Slower ECB Rate Cuts

(RTTNews) - Euro area inflation accelerated for the third straight month to the fastest in five months in December, suggesting that the European Central Bank will be cutting interest rates more slowly than anticipated.

The harmonized index of consumer prices climbed 2.4 percent from a year ago, following a 2.2 percent gain in November, preliminary data from Eurostat showed on Tuesday. The pace of growth matched economists' expectations and marked the strongest since August.

Excluding prices of energy, food, alcohol and tobacco, core inflation held steady at 2.7 percent in December and was in line with forecast.

On a monthly basis, the HICP moved up 0.4 percent in December, data showed.

Looking at the main components of the HICP, services registered the highest annual rate of 4.0 percent. This follows November's 3.9 percent rise.

Food, alcohol and tobacco prices showed a stable growth of 2.7 percent. Meanwhile, energy prices edged up 0.1 percent, reversing a 2.0 percent drop in November.

The increase in non-energy industrial goods prices eased marginally to 0.5 percent from 0.6 percent in the prior month.

Capital Economics' economist Jack Allen-Reynolds said the continued stickiness of services inflation means that the ECB is likely to keep cutting interest rates only slowly as the economic outlook remains poor.

The economist said the ECB would prefer to cut in 25 bps increments rather than moving more quickly. The ECB had reduced its benchmark rates by quarter points in December, following reductions by the same volume in October and September.

Results of an ECB survey released on Tuesday showed that consumers' median expectations for inflation in next 12 months rose to 2.6 percent from 2.5 percent.

Elsewhere, official data today showed that the euro area unemployment rate remained unchanged at 6.3 percent in November.

Nearly 10.819 million people were unemployed. Compared to October, unemployment decreased by 39,000.

The youth unemployment rate in the currency bloc remained at 15.0 percent in October, data showed.