Eurozone Inflation Falls for First Time in 17 Months,Yet Remains Still High at 10 Percent

European Central Bank President Christine Lagarde speaks during a news conference following the ECB's monetary policy meeting in Frankfurt, Germany, on Oct. 27, 2022. Wolfgang Rattay/Reuters

Annual inflation in the eurozone is expected to fall in November, according to a flash estimate by Eurostat, the statistical office of the European Union.

Twelve-month inflation for November 2022 is projected to be at 10 percent, down from the 10.6 percent in October, according to an agency news release on Nov. 22. This is the first decline in the annual inflation rate in 17 consecutive months.

“Energy is expected to have the highest annual rate in November (34.9 percent, compared with 41.5 percent in October), followed by food, alcohol, and tobacco (13.6 percent, compared with 13.1 percent in October), non-energy industrial goods (6.1 percent, stable compared with October), and services (4.2 percent, compared with 4.3 percent in October),” the release said.

The highest inflation rate for November is projected to be in Latvia, at 21.7 percent, followed by Luxembourg and Ireland at 21.4 percent, Slovakia at 15.1 percent, Italy at 12.5 percent, Germany at 11.3 percent, Netherlands at 11.2 percent, Austria at 11.1 percent, Slovenia at 10.8 percent, Belgium at 10.5 percent, and Portugal at 10.3 percent.

The remaining nations registered annual inflation below 10 percent, with the lowest being Spain at 6.6 percent.

At 10 percent, eurozone inflation is running at five times the European Central Bank’s (ECB) target rate of 2 percent. The bank has been raising interest rates in a bid to counter inflation. The ECB began raising interest rates in July, pushing it up from zero percent to 2 percent as of late October.

The bank is scheduled to meet in December, when it is expected to raise interest rates by 0.50 percent or 0.75 percent.

Inflation Peak

Despite running at high rates, inflation has yet to peak, according to ECB President Christine Lagarde. “I would like to see inflation having peaked in October, but I’m afraid that I would not go as far as that,” she told European lawmakers on Nov. 28, according to Euractiv.

“I think that there is too much uncertainty—particularly in one component which is the pass-through of high energy costs at wholesale level into retail level—to assume that inflation has actually reached its peak. It would surprise me.”

Lagarde suggested that the ECB will continue raising interest rates as the bank still has a “way to go” and is “not done” with inflation.

Europe’s inflation was initially driven by supply constraints that emerged after the COVID-19 pandemic reopening. But now, inflation is being driven by high energy costs due to Russia’s war in Ukraine and soaring food prices due to a poor harvest.

As economic growth does not seem to be taking as much of a hit as expected, some experts believe that the deflationary impact of the winter season might turn out to have a more modest impact than calculated.