Eurozone inflation climbs to 2.9% in December, ECB cautious on rate cuts

FRANKFURT – Inflation in the Eurozone edged up to 2.9% last month, influenced partly by Germany’s subsidy measures aimed at reducing heating bills, yet core inflation is on a downward trend, now at 3.4%. Amid these developments, the European Central Bank (ECB) maintains a cautious stance on adjusting interest rates, signaling that any potential rate cuts could be postponed until at least mid-2024.

The ECB’s benchmark interest rate remains at 4%, as the central bank watches for the impact of disparate inflation rates across member countries. Germany saw a notable inflation increase, attributed to the subsidies, while France reported a modest uptick and Spain’s inflation rates remained steady.

Economists are forecasting an average inflation rate of 2.7% for the first quarter, which is slightly more optimistic compared to the ECB’s own projection of 2.9%. The ECB is keeping a close eye on wage growth and corporate profits, key factors that could influence the timeline for achieving its inflation target of 2%. The central bank’s cautious approach reflects the balancing act of supporting economic growth while aiming to control inflation.

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