LONDON (AP) — Further signs of a cooldown in the eurozone economy emerged Friday, weighing on expectations that the European Central Bank will start raising interest rates this year.
Inflation across the 19-country currency union fell in December to an eight-month low in the wake of the recent slump in oil prices. And a closely watched survey found that the eurozone economy barely grew during the month, largely because of popular protests that brought much of France to a standstill.
Eurostat, the European Union’s statistics agency, said consumer prices were up 1.6% in the year to December, down from the previous month’s 1.9%. Inflation is now at its lowest level since April.
A slump in energy prices in the last months of 2018 was the main reason for the decline: over the year, they were up 5.5% against the 9.1% recorded in November.
When stripping out potentially volatile items such as energy, alcohol, food and tobacco, inflation remains stubbornly low. The so-called core rate was steady at 1% in the year to December.
The fall in the headline inflation rate, coupled with the consistently low core rate, will likely rein in expectations that the European Central Bank will raise interest rates soon, especially if oil prices remain subdued. The euro fell on the news to trade 0.2% lower on the day at $1.1398.
The ECB, which brought its emergency bond-buying stimulus program to an end last month, aims for an inflation rate of just below 2%. It has kept its main interest rate at zero for years to shore up growth and inflation. Bert Colijn, senior eurozone economist at ING, said headline inflation is expected to move towards the core rate this year and could even fall to around 1% if oil prices remain around $50 a barrel.
“According to its forward guidance, the ECB will leave rates unchanged through the summer, but with inflation moving away from the target and an economy that is slowing, the question is whether the ECB will see a chance to hike at all,” Colijn said.