Cyprus reports 1.9% inflation below Eurozone average in December

In December, the Cyprus Statistical Service (CSE) reported an inflation rate of 1.6 per cent, slightly below Eurostat’s harmonised consumer price index, which recorded 1.9 per cent. This positions Cyprus with the sixth lowest inflation rate in the Eurozone, notably below the bloc’s average of 2.9 per cent in December, marking an increase from the 2.4 per cent reported in November.

Among Eurozone nations, Slovakia experienced the highest inflation at 6.6 per cent, followed by Austria at 5.7 per cent and Croatia at 5.4 per cent. Conversely, Belgium and Italy reported the lowest rates at 0.5 per cent, followed closely by Latvia at 0.9 per cent, the Netherlands at 1 per cent, and Lithuania and Finland at 1.6 per cent. Portugal and Cyprus recorded rates of 1.8 per cent and 1.9 per cent, respectively.

The rise in Germany’s inflation, from 2.3 per cent to 3.8 per cent in December, has raised doubts about the European Central Bank’s anticipated interest rate cuts in March. Analysts attribute this increase to the reduction in government subsidies for natural gas, electricity, and food initiated in 2023, impacting inflation across Europe.

In France, inflation reached 4.1 per cent, while Estonia, Spain, Greece, Slovenia, and Ireland reported rates ranging from 3.2 per cent to 4.3 per cent. In the Eurozone, the food-alcohol-tobacco category saw a 6.1 per cent year-on-year appreciation, contributing significantly to inflationary pressures, albeit a slowdown from 6.9 per cent in November. The services sector also played a role with a 4 per cent increase, consistent with the previous measurement.

Non-energy industrial goods prices rose by 2.5 per cent annually, a slight deceleration from November’s 2.9 per cent, while energy prices continued to decline at a slower pace, showing a 6.7 per cent annual decrease after an 11.5 per cent reduction.

Bloomberg analysts predict a temporary nature to the inflation surge, estimating an average of 2.7 per cent in the first quarter of 2024, slightly more optimistic than the European Central Bank’s forecast of 2.9 per cent. The ECB envisions inflation returning to its 2 per cent target by mid-2025.

Eurostat’s recent data release has tempered investors’ expectations regarding the extent of interest rate cuts by the European Central Bank in 2024. Previously, money markets anticipated an overall Eurozone rate cut of 149 basis points in 2024, but for the first time since mid-December, investors now expect fewer than six rate cuts, each by a quarter of a percentage point.