Eurozone Inflation Breakdown

Like the rest of the world, EU central bankers have been working diligently to curb inflation in the Eurozone. On the 15th of this month, the European Central Bank (ECB) announced a 50bp rate hike, following in the footsteps of the  FED and Bank of England.  These announcements come as the EU has been grappling with decades-high inflation, drastically increasing due to the COVID-19 pandemic. 

The data from the Eurozone’s CPI report, when considered with the reports from the U.K. and U.S., may suggest that inflation has peaked. 

The CPI report released for the Eurozone last Friday showed a month-over-month, non-seasonally adjusted decrease in inflation by -0.1%. The year-over-year, non-seasonally adjusted change went from a high of 10.6% in October to 10.1% in November. This follows the same trend as the reports issued by the U.K. and U.S. earlier last week. While these reports are unlikely to have a large influence on the terminal rates pursued by central bankers, it does show that central bankers might be on the right track to taming inflation. 

A breakdown of the Euro zone’s CPI report components tells much the same story as the U.S. CPI report.  

Month-over-month, there was a decline in all categories, most noticeably in gas, electricity, and heat energy. This comes as no surprise, as oil prices have been on the decline. The total percent change for all items was -0.1%, largely due to decreasing energy costs.

When examining the year-over-year change, it becomes apparent why there are still worries regarding the rising costs of food and energy in the Eurozone. While the month-over-month pace of inflation for food may have abated and energy has gone down significantly, total inflation for both remains quite high.  

It will be important to watch the costs of food and energy moving forward as the Russian invasion of Ukraine persists, and China starts the process of reopening.

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