Eurozone inflation edged higher in November, reaching 2.3% year-on-year, in line with expectations, as energy prices recovered slightly. However, monthly data showed a decline in consumer prices, raising hopes for continued disinflation. Energy prices remained 1.9% lower than the previous year but rose by 0.6% on a monthly basis. Excluding energy, annual inflation held steady at 2.7%, while core inflation increased to 2.8%. Services prices rose 3.9% year-on-year but fell by 0.9% monthly. The European Central Bank (ECB) may consider further rate cuts at its December meeting, given weakening economic activity indicated by the latest Purchasing Managers’ Index surveys. Germany, the largest economy in the eurozone, reported a 1.5% drop in retail sales in October, the largest decline in two years, reflecting deteriorating consumer sentiment.
Financial markets showed little reaction to the data, with the euro holding steady against the US dollar and bond yields remaining unchanged. The Euro STOXX 50 index traded flat, with gains in stocks like Airbus SE and Schneider Electric SE offsetting losses in Telefonica and Banco Santander. Analysts suggest that while the ECB may consider a 25 basis point rate cut in December, the economy is not in dire straits yet, and the neutral rate remains uncertain. The continued disinflation trend and weakening economic momentum in the eurozone point towards potential challenges ahead.
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