By Chrysostomos Tsoufis

The Eurozone has seen inflation of 2.4% since July 2021, when for the first time inflation exceeded the 2% target set by the European Central Bank. This means that prices in the Old Continent are increasing at a rate of more than 2% for 28 consecutive months.

Eurostat’s preliminary announcements for November also surprised economists as they expected the… ball to sit at 2.7%.

In Belgium prices have been falling for 2 months, in Italy the increases are less than unity, in Germany they are only at 2.3% and the French are finally below 4%. Even the Baltic countries “shaken off” the brutal 20s and in fact Lithuania and Latvia are now well below 3% of Greece!!!

These Eurostat announcements it was exactly what a significant portion of economists and market people expected to advance their argument that the ECB should sooner rather than later start thinking about reversing its policy and cutting interest rates. Some have already begun to mutter the word deflation while trading in European money markets – which naturally closed positive to seal the best month since January – shows that investors expect Frankfurt to cut interest rates by 25 basis points from April finally and not in June according to the initial estimates.

Their arguments are also reinforced by the disappointing results regarding the rate of growth in the Eurozone. The Union’s economy is on the brink of recession as the third quarter barely registered 0.1% growth. Czech Republic, Estonia, Ireland, Hungary, Netherlands, Austria, Luxembourg have already recorded 2 consecutive negative quarters and Germany, Europe’s largest economy is behind them.

Continuing the increases or keeping interest rates at these high levels for longer than necessary can cause “undue” damage, many experts agree.

However, the ECB is not in a hurry to say V for…Victory even though within itself the …movement to reduce interest rates is starting to take shape with Italy’s new central banker Fabio Panetta arguing in his first speech that deflation it has begun and unnecessary damage to the economy must be avoided.

Flipping the coin to the macro, Frankfurt analysts see that the Eurozone economy as a whole is holding up and showing even marginal growth when estimates at the beginning of the year spoke of a significant recession. Even the unemployment figures are encouraging, as in October it remained stable at 6.5%, which is a historic low.

Furthermore the dangers have not disappeared. In all her speeches, Christine Lagarde draws everyone’s attention for the coming months to energy prices and wage increases as factors that could reverse the course of inflation.

Furthermore, core inflation – a measure the ECB “loves” – which excludes the volatile components of food and energy, is well above headline inflation at 3.6%%

Somehow even Yannis Stournaras, who is very far from the hard line of the ECB’s hawks, ruled out any reduction in interest rates in the Spring.