Inflation drops sharply in Europe but some prices are still rising faster

By Julia Horowitz, CNN

Inflation in Europe continued to decline in December as energy prices rose at a slower pace.

Prices across the 19 countries that used the euro in 2022 increased at an annual rate of 9.2% in December, the European Union’s statistical office said Friday. In November, prices rose 10.1%. Annual inflation in the euro area reached a record high of 10.6% in October.

The pullback in headline inflation is a positive development for households and businesses that have been battered by high costs. But prices in many sectors of the economy are still rising at an uncomfortable clip, underscoring the tough task ahead for policymakers.

While energy inflation fell to 25.7% in December, compared to 34.9% in November, the cost of food, alcohol and tobacco climbed 13.8%, versus 13.6% the previous month. Services inflation rose to 4.4% from 4.2%.

Core inflation, which strips out volatile food and energy prices, reached 5.2% in December, up from 5% in November.

“There can therefore be no talk of a sustained weakening of inflation,” Ralph Solveen, a senior economist at Germany’s Commerzbank, said in a research note.

The data is likely to encourage the European Central Bank to stick with its policy of raising borrowing costs. The central bank, which aggressively hiked interest rates last year, has indicated it will continue with increases in 2023.

“We have more ground to cover,” ECB President Christine Lagarde said last month, noting inflation “remains far too high and is projected to stay above the target for too long.”

The European Central Bank aims to keep inflation near 2%.

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