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Inflation in the Eurozone: Will inflation finally fall below 2 percent?
Inflation in the euro area is falling while the US economy is growing. Interest rate cuts by the ECB and Fed in focus. Economic Outlook 2025.
Inflation in the Eurozone: Will inflation finally fall below 2 percent?
On January 14, 2025, various factors will shape the economic situation in the Eurozone and the USA. Inflation rates in both regions are approaching the monetary policy inflation target of 2 percent. The European Central Bank (ECB) and the US Federal Reserve (Fed) are continuing their interest rate cuts, while the Eurozone continues to suffer from a weak economy compared to the US economy.
While inflation in the euro area rose sharply during the corona pandemic and the Ukraine conflict, it has been approaching the target of 2 percent since 2023. In September 2024, price increases were below 2 percent for the first time since the start of the energy crisis, but rose again to 2.4 percent in October. According to an analysis by IW Cologne Price reductions for energy and stabilized price increases for other groups of goods contribute to stabilizing inflation. Services, on the other hand, continue to show high inflation rates, due to rising wage costs, which reached 5.42 percent in the third quarter of 2024, the highest value in 25 years.
Unemployment and growth
The unemployment rate in the euro zone has fallen continuously since 2021 and was 6.3 percent in October 2024. In Germany, the unemployment rate rose to 6.0 percent in December 2024, an increase of 0.3 percentage points compared to the previous year. Eurozone growth was 0.9 percent in Q3 2024, below the EU average of 1.0 percent, while the US economy grew by 2.7 percent over the same period.
The US economy also recorded a stable labor market with an unemployment rate of 4.1 percent. Inflation in the USA was 2.6 percent in October 2024, slightly above the previous month. On December 12, 2024, the ECB lowered the three key interest rates by 0.25 percent each to 3.15 percent, while the Fed also reduced its key interest rates by 0.25 percentage points to 4.25 to 4.5 percent. Analysts point to U.S. interest rate expectations influencing the market, with falling interest rate cut hopes weighing on tech stocks, such as daily news reported.