Eurozone inflation rises, but four rate cuts are still to come from the ECB this year

Eurozone inflation ticked up as expected to 2.4% in December, while core inflation held steady at 2.7%. Services inflation remains sticky, having risen back to 4.0%.

With core inflation steady and the headline jump down to well-known energy base effects, this figure does close to nothing in terms of altering the path for the ECB.

Policymakers have been flagging a temporary increase for several months and will likely look through it for now. I continue to expect 100bps in rate cuts this year, albeit at a slower pace than the market is currently pricing.

Of course, however, the fading effect of falling energy prices puts the burden on services to bring inflation down to 2% next year, and here we have seen virtually zero progress in the hard data over the past year, despite the weakness in demand that led to quicker easing last year. An 0.8% month-on-month print for services inflation is some strong ammunition for the hawkish leaners and these lingering risks keep the ECB on a relatively cautious cutting path.