Inflation in the Eurozone Slows in the Last Months of 2022

The pandemic and the war in Ukraine have led to supply and demand issues across the world's energy and food sectors, pushing prices through the roof. However, recent declines in energy prices combined with repeated interest rate hikes are helping to slow inflation in the eurozone.

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Towards the end of last year, the inflation rate in the eurozone fell faster than experts had predicted. Dropping 0.6 percentage points from October to November, inflation in the eurozone experienced its first decline since June 2021. In December, the rate fell again from double digits to 9.2%, leading many to question whether inflation in Europe has passed its peak.

The cooling of record-high energy prices is thought to have helped ease inflation rates in the last months of the year. According to Eurostat, energy prices across the eurozone were 25.7% higher in the year to December, down from an annual rate of 41.5% in October.

With an inflation rate of 6.7%, Spain had the lowest level of inflation in the Union in November. This slowed again to 5.6% in December as travel discounts, rent caps and energy bill relief measures administered by the Spanish government began to cool price growth.

Since Spain’s latest inflation figures, the country has approved further measures to ease inflation, such as reductions in value-added tax on basic food staples and a 200-euro bonus for households with annual incomes below the threshold of 27,000 euros.

Meanwhile, inflation in France unexpectedly dropped to 6.7% in December from a record high of 7.1% a month earlier. The most significant drop was in energy; prices rose 15.1% in the year to December, down from over 18% in November.

The rate of inflation in Germany fell back to single digits, from 11.3% in November to 9.6% in December. Again, this was largely due to the government’s efforts to bring consumers’ high energy bills down.

However, we cannot overlook the fact that Germany ended the year with its highest annual rate of inflation since the Cold War. At 8.7%, the country’s yearly figure stands 5.5 percentage points higher than in 2021.

Lower rates of inflation in the eurozone are leading many to question whether inflation has finally peaked. And whilst it is possible that rates will rise again, experts are predicting rapid falls across Europe in 2023. This raises hopes that this year we will see inflation rates and high consumer prices start to fall back under control.

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