JP Morgan AM: Energy base effects are helping eurozone inflation

JP Morgan AM: Energy base effects are helping eurozone inflation

December 4, 2023

Inflation Eurozone
Eurozone.jpg

Eurozone headline inflation fell to a preliminary 2.4% year-on-year in November. Energy continued to detract from the overall print, as energy prices today compared favourably with higher levels last winter.

Inflation should continue to moderate over the next few months, thanks partly to still-supportive base effects. However, through 2024 base effects will become less favourable as year-ago prices for energy and food will be less elevated.

Given this, we expect the European Central Bank’s (ECB’s) first rate cut to come somewhat later than investors are currently expecting, once services inflation – currently driven by tight labour markets – has slowed more meaningfully.

But slowing services inflation would likely be accompanied by a slowing economy. Thus, once the ECB does begin reducing rates, cuts could be deeper than currently priced – a potential boost for core fixed income.

04122023 JP Morgan AM

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