Inflation across the European Union has already reached the brink of the 2% target level, it was announced today (19 December).
The figure dropped to 2.4% from 2.9% last month, indicating rate rises have already done their job, with the base deposit rate at 4%.
The dip was more than economists’ consensus forecasts of a fall to 2.7%.
The speed of the fall could further raise concerns that the ECB has overtightened and inflation may slump below target, or even into deflation.
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There is of course significant variation in the inflation rate between individual member countries, further complicating the central bank’s task.
Michael Field, European market strategist at Morningstar, commented: “With inflation now within touching distance of the much coveted 2% level, the focus for the ECB will certainly now shift to keeping the Eurozone economy alive, an economy which has been teetering on the brink of recession in 2023.
“Markets have rallied in recent weeks in the hope of interest rate cuts early into 2024, and with inflation falling rapidly there is further motivation for the ECB to make cuts sooner rather than later.
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“The ECB, like the other major central banks, has been using language in its interest rate policy statements to give itself the ability to hold-off on rate cuts should inflation rally again. However, today’s number gives no suggestion of this happening soon.”
