Euro area December flash inflation: not yet “mission accomplished” for the ECB

Euro area headline flash inflation increased to 2. 4 % Y/Y in Dec ember from 2.2% in November , as expected by the consensus . Services inflation picked up slightly to 4.0% and continued to show signs of stickiness as the services inflation rate has been broadly unchanged since end 2023. U nderlying inflation is stable at 2.7% for the fourth month in a row. Non-energy industrial g oods inflation is broadly unchanged at 0. 5 % from 0.6% in November . Energy prices turned positive for the first time since July 2024 to +0.1% from -2.0% due to base effects . Croatia recorded the highest inflation rate ( 4.5 %) alongside with Belgium (4.4%) while Ireland (1.0%) and Italy (1.4%) r ecorded the lowest rates . ► Germany : Headline HICP inflation increased in Dec ember to 2. 9 % Y/Y from 2.4% , beating consensus expectations (2. 6 %). German national core inflation increased for the fourth month in a row to 3. 1 % from 3.0 % due to services (4.1% from 4.0%) and goods (+ 1.1 % from +0. 7 %) prices . ► France: Headline HICP inflation came out at 1. 8 % Y/Y in Dec ember, slightly below consensus but in line with our expectations, after 1. 7 % in Novem ber. Looking into the details of the national CPI , energy prices picked up to 1.2% Y/Y from -0.7% Y/Y while services prices remained stable at 2.3%. We expect French inflation to decrease sharply from February to July 2025 and hover slightly above 1% Y/Y for the Harmonized index due to base effects and the expected fall in electricity prices from February 2025 . ► Italy : headline HICP inflation surprised to the downside to 1. 4 % from 1. 5 %, below consensus expectations (1. 6 %). National core inflation edged at 1.8% Y/Y from 1.9% in November. ► Spain : Inflation (HICP) increased to 2. 8 % in Dec ember from 2 . 4 % in Novem ber , higher than consensus expectations of 2.6%. The Spanish INE indicated this reflects th e increase in fuel prices and a more pronounced rise in leisure and culture prices than in December 2023 . National u nderlying inflation picked up to 2.6% from 2.4% . ► ECB call : Today ’ s inflation report confirm s what Christine Lagarde said at the last press conference, indicating that there is not yet the victory against inflation, not yet “mission accomplished” . This cemented our view that the ECB will continue to proceed carefully, keeping its gradual meeting-by-meeting approach. We continue to expect a rate cut at each meeting until June 2025, with a terminal rate at 2% , close to the neutral rate .