Inflation in thearea of the euro is falling more than expected

Inflation in thearea Europe’s single currency, the euro, fell more than expected last month, but underlying price pressures have increased, meaning the European Central Bank is likely to continue raising interest rates in the coming months.

Data released by the statistical office of the European Union (Eurostat) showed on Friday that rising consumer prices in the region, which brought the number of countries to 20 with Croatia’s accession on January 1, slowed to 9.2% in December, compared to 10.1% the previous month. The rate fell short of expectations for a 9.7% price hike in a Reuters poll.

However, this seemingly good data hides an unfortunate detail, in as most of the decline was due to lower energy prices, while all major components of core inflation increased.

The inflation rate, which excludes food and energy price volatility, rose to 6.9% from 6.6%, while a more restrictive measure which also excludes alcohol and tobacco prices rose to 5.2% since 5%.

Inflation accelerated in services and non-energy industrial goods, which are closely monitored by the European Central Bank to gauge continued price growth, raising fears that coping with higher prices will be more difficult than expected.

The problem is that the longer price growth continues, the harder it is to curb it, as companies begin to adjust their pricing and wage policies, which in turn perpetuates inflation.

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