Inflation in the euro zone rises to 2.3% in November, meeting expectations

Annual inflation in the euro zone rose to 2.3% in November, statistics agency Eurostat said on Friday, returning it above the European Central Bank's 2% target.

Economists polled by Reuters had expected an annualized gain of 2.3% for the month, up from 2% in October.

Price increases in the bloc have been higher for two months in a row after falling to 1.7% in September, as expected due to the waning deflationary impact of energy prices.

Core inflation, which excludes volatile energy, food, alcohol and tobacco prices, remained at 2.7% for the third month in a row in November.

The core rate is supported by persistent inflation in the services sector, which fell only slightly in November to 3.9% in November from 4% in the previous month.

Markets have fully priced in a 25 basis point ECB rate cut in December, which would mark the institution's fourth rate cut this year.

Speculation that the central bank could be forced to make a bigger cut of 50 basis points has faded since last month, after slight improvements in weak euro area growth prospects and a pick-up in inflation.

Inflation came in slightly higher than forecast in October, while ECB policymakers, including board member Isabel Schnabel, have emphasized the need for caution in monetary easing.

The ECB's decision will be largely driven by the latest macroeconomic projections that the ECB will receive just before its upcoming meeting on 12 December. The central bank will also weigh the potential global impact of the recent election of Donald Trump as US president, including whether he will follow through on his threats of universal trade tariffs and how such a move would affect European Union exports .

The euros was little changed against the US dollar and British pound following the data release.

Kyle Chapman, FX market analyst at Ballinger Group, said in an emailed note that the rise in headline inflation was solely due to year-on-year volatility in energy prices, and that the ECB would take a favorable view see a decline of 0.9 percentage points in the coming month. services inflation on a monthly basis.

“With the growth picture looking weak, there is still no doubt that inflation will fall to 2% on a sustained basis next year,” Chapman said, adding that the market nevertheless appeared to have stabilized at a move of 25 in December basis points. .

“The economy is not yet collapsing and there is uncertainty about where neutral interest rates lie, so there is no urgent need to start austerity early,” he noted.

Melanie Debono, senior European economist at Pantheon Macroeconomics, said the inflation figures, combined with recent data showing record low unemployment and higher negotiable wage growth in the third quarter, will prevent a 50 basis point cut.

The final monetary policy decision will nevertheless remain a close call, with the ECB's more dovish members pushing hard for a 50 basis point cut, Debono said. If the central bank sticks with a 25 basis point move, it will likely follow it up with cuts of the same size at both subsequent meetings in January and March, she added.