KOF Monetary Policy Communicator for the Euro Area, December 2024

The ECB’s Governing Council continued its monetary policy loosening by lowering its three key ECB interest rates by 25 basis points. As expected, inflation picked-up again in the past months due to base effects. The Governing Council expects inflation to average 2.4% in 2024, 2.1% in 2025, 1.9% in 2026 and 2.1% in 2027, effectively oscillating around the ECB’s target over the projection horizon.

Annual HICP inflation in the euro area has increased to 2.3% in November, from 1.7% in September and 2.0% in October. Food price inflation stands at 2.8% and goods inflation increased to 0.7%. Services inflation was recorded at 3.9%, as it repeatedly has during the course of this year. The ECB’s assessment is that wage pressures are persisting, despite some easing recorded in compensation per employee growth in the third quarter of 2024. Lower wage and higher productivity growth are expected to dampen labour cost growth over the forecast horizon. Most measures of longer-term inflation expectations currently stand at around 2%.