Eurozone Inflation Challenges ECB's 2025 Goals
Brussels, Saturday, 4 January 2025.
Eurozone inflation continues to exceed targets, complicating ECB President Lagarde’s efforts to stabilize at 2% by 2025, with December’s core inflation at 2.7%.
Current Inflation Landscape
Recent data reveals persistent inflation pressures in the Eurozone, with December 2024 showing headline inflation at 2.4%, up from 2.2% in November [2]. The core inflation rate, which excludes volatile items like energy and food, remains elevated at 2.7% [1][2]. This data, set to be officially released by Eurostat on January 7, 2025 [2], indicates that the European Central Bank (ECB) faces ongoing challenges in achieving its targeted 2% inflation rate.
ECB’s Strategic Outlook
Christine Lagarde, ECB President, has acknowledged 2024’s progress while emphasizing 2025 as a pivotal year for monetary policy [4]. The ECB has already adjusted its inflation projections, lowering its 2025 outlook to 2.1% from the previous 2.3% forecast made in September 2024 [2]. Core inflation is expected to average 2.3% in 2025, before declining to 1.9% in subsequent years [2].
Key Contributing Factors
November 2024’s inflation data showed significant pressure from various sectors, with services contributing 3.9 percentage points and food, alcohol & tobacco adding 2.8 percentage points. Energy prices provided some relief with a negative contribution of 1.9 percentage points [2]. These mixed signals reflect the complex economic environment the ECB must navigate.
Market Expectations and Policy Implications
Following the ECB’s December 2024 decision to reduce the deposit facility rate to 3.00% [2], analysts anticipate further monetary policy adjustments. Some experts project the deposit rate could fall to as low as 1.50% by late 2025 [2]. Deutsche Bank’s chief economist suggests that inflation risks in 2025 are more likely to undershoot rather than exceed the 2% target [2], while BNP Paribas forecasts inflation will average 2.1% in Q1 2025 before stabilizing at 2% for most of the year [2].