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Inflation Eases In Europe As Energy Prices Fall

In Europe, inflation has eased for the first time in more than a year as energy prices have fallen from painful highs, but the double-digit rate remains near a record

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Inflation has eased in Europe for the first time in more than a year as energy prices have fallen from painful highs, but the double-digit rate remains near a record, robbing consumers of their purchasing power and prompting economists to predict a recession.

The consumer price index in the 19 eurozone countries rose 10 per cent year on year in November, according to Eurostat, the European Union's statistics agency.

This was a decrease from 10.6 per cent in October and it was the first decrease since June 2021.

The figure reflected faster annual increases in food, alcohol and tobacco prices, while energy prices fell to a 34.9 per cent annual increase from an astronomical 41.5 per cent in October.

High energy prices caused by Russia largely cutting off natural gas due to the Ukraine war, as well as bottlenecks in raw materials and parts supplies and rebounding demand after Covid-19 pandemic restrictions ended, are fueling out-of-control inflation.

Rising prices have hurt economies all over the world, but they have been especially hard on Europe because of its reliance on Russian natural gas, which exporter Gazprom has reduced to a trickle.

Because of their support for Ukraine, European leaders claim it is energy warfare.

Natural gas prices, on the other hand, have fallen from all-time highs this summer as Europe has largely filled its winter storage with supplies from other countries and mild weather has reduced fears of a shortage during the heating season.

The November inflation figure backs up predictions that the European Central Bank will slow its rate hikes.

According to economists at Oxford Economics, the bank is expected to go with a half-point increase at its December 15 meeting, rather than the three-quarters-point increase seen at its previous two meetings.

They predicted that inflation would remain elevated while falling energy prices mean that today’s data will almost certainly be followed by a gradual decrease in eurozone inflation.

ECB President Christine Lagarde said on Monday that she does not believe inflation has peaked after reaching record levels and that the bank will continue to raise interest rates to combat price increases.

Inflation is targeted at 2 per cent by the bank.

When we look at what is driving inflation, whether it is food and commodities in general or energy in particular, we do not see the components or the direction that would lead me to believe that we have reached peak inflation and that it will fall quickly, she told to European bankers. 

That means the central bank will keep taming inflation with all of its tools, primarily interest rate hikes, according to Lagarde.

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