### Euro Zone Inflation Cools to 2.4% in November, Fueling Speculation of ECB Rate Cuts
A general view shows a weekend crowd of people visiting the Aachen Christmas market in Aachen, Germany, on November 25, 2023.(Photo by Ying Tang/NurPhoto via Getty Images)
#### Cooling Inflation Numbers
Flash figures released on Thursday showed that annual inflation in the euro zone cooled to 2.4% in November from 2.9% in October, surprising economists who had expected a reading of 2.7%. Core inflation, a measure closely-watched by the European Central Bank (ECB) and which excludes the volatile effects of energy, food, alcohol, and tobacco, also dropped to 3.6% from 4.2% in October.
The significant drop in energy prices has been a major contributing factor to the decline in headline inflation, with energy prices logging year-on-year declines of -11.5% in November. On the other hand, food, alcohol, and tobacco had the biggest pull higher, contributing to a 6.9% increase.
The cooling inflation numbers are a welcome relief for the euro zone, as headline inflation has significantly dropped from the peak levels of 10.6% in October 2022. In the euro zone’s largest economies, Germany and France, inflation has dropped to 2.3% and 3.8%, respectively.
### Market Speculation
Following the release of the inflation figures, Mathieu Savary, chief European strategist at BCA Research, believes that traders could be tempted to bring forward expectations for the timeline of the first ECB rate cut. However, he argued that the central bank’s concerns over labor market tightness continue to imply “later rather than sooner rate cuts.”
Bert Colijn, senior euro zone economist at ING, also weighed in on the speculation, stating that signs of an imminent victory on inflation are mounting. He added that the impact from existing monetary tightening was yet to be fully felt, and suggested that the market is right to start looking at rate cuts for 2024, with the first one potentially happening before the summer.
### Unemployment and Economic Contraction
In separate data released by statistics agency Eurostat, it was revealed that unemployment in the euro area remained at a record low of 6.5% in October, despite a contraction in the euro zone economy in the third quarter. ECB officials have repeatedly stressed that it is too early to declare victory over price rises in the 20-member euro zone bloc, as they continue to monitor potential pressures from wage increases and energy markets.
The market is now abuzz with speculation about the potential for ECB rate cuts in response to the cooling inflation numbers. As the central bank continues to monitor the situation, traders and economists alike are eagerly anticipating any signs of further monetary policy changes in the near future.
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