| Consensus | Consensus Range | Actual | Previous | |
| HICP - M/M | 0.2% | 0.2% to 0.2% | 0.2% | -0.3% |
| HICP - Y/Y | 2.0% | 2.0% to 2.0% | 1.9% | 2.1% |
| Narrow Core - M/M | 0.3% | 0.3% to 0.3% | 0.3% | -0.5% |
| Narrow Core - Y/Y | 2.3% | 2.3% to 2.3% | 2.3% | 2.4% |
Highlights
Euro area inflation grew over the month by 0.2 percent, a contrast to the deflationary trend witnessed in November. Annually, it grew by 1.9 percent from 2.1 percent in November, marking a notable decline from the 2.4 percent recorded a year earlier. This moderation suggests that price pressures are gradually stabilising, bringing inflation closer to the European Central Bank's medium-term target.
A closer look at the components reveals a mixed inflation story. Services remained the dominant driver, contributing 1.54 percentage points to overall inflation. Food, alcohol and tobacco added a further 0.49 percentage points, indicating that households are still facing elevated living costs despite some easing in global supply conditions. In contrast, non-energy industrial goods made only a marginal contribution of 0.09 percentage points, while energy prices exerted a dampening effect, subtracting 0.18 percentage points from inflation, largely due to lower fuel and electricity costs.
Regionally, annual headline inflation fell in Germany (2.0 percent after 2.6 percent), France (0.7 percent after 0.8 percent), and Spain (3.0 percent after 3.2 percent), but rose in Italy (1.2 percent after 1.1 percent). Consequently, annual headline inflation remained within the European Central Bank's target in France, Germany and Italy, while Spain continued to exceed it.
In summary, the December figures point to a shift in inflation dynamics, with services replacing energy as the main source of price persistence in the euro area. These updates take the RPI to 11 and the RPI-P to 30, meaning that economic activities are now exceeding expectations in the euro area.
Market Consensus Before Announcement
Forecasters see no revision from the flash with HICP up 0.2 percent on month and 2.0 percent on year.
Definition
The harmonised index of consumer prices (HICP) is a measure of consumer prices used to calculate inflation on a consistent basis across the European Union. Changes in the index provide an estimate of inflation, as targeted by the European Central Bank (ECB). Eurostat provides statistics for the EU and Eurozone aggregates, individual member states and for the major subsectors. Over the short-term, the central bank focusses on a number of core measures which seek to strip out the most volatile components and so give a much better guide to underlying developments. Amongst these, financial markets normally concentrate upon the narrowest gauge which excludes energy, food, alcohol and tobacco.
Description
The measure of choice in the European Monetary Union (EMU) is the harmonized index of consumer prices which has been constructed to allow cross member state comparisons. An investor who understands how inflation influences the markets will benefit over those investors that do not understand the impact. In the European Monetary Union, where monetary policy decisions rest on the ECB's inflation target, the rate of inflation directly affects all interest rates charged to business and the consumer.
Inflation is an increase in the overall prices of goods and services. The relationship between inflation and interest rates is the key to understanding how indicators such as the CPI influence the markets - and your investments.
Inflation (along with various risks) basically explains how interest rates are set on everything from your mortgage and auto loans to Treasury bills, notes and bonds. As the rate of inflation changes and as expectations on inflation change, the markets adjust interest rates. The effect ripples across stocks, bonds, commodities, and your portfolio, often in a dramatic fashion.
By tracking inflation, whether high or low, rising or falling, investors can anticipate how different types of investments will perform. Over the long run, the bond market will rally (fall) when increases in the HICP are small (large). The equity market rallies with the bond market because low inflation promises low interest rates and is good for profits.