The Economic Sentiment Indicator (ESI) rose by 1.8 points to 95.8 points compared to the previous month, as the European Commission announced on Friday in Brussels. On average, analysts had only expected an increase to 94.7 points. The mood in the service sector has improved significantly. Industrial and retail confidence as well as consumer confidence also improved. The high energy prices had recently weakened noticeably. Natural gas inventories are well stocked, also thanks to the good weather. A gas shortage seems increasingly unlikely. Apparently this gave a little more confidence.
Inflation unexpectedly dropped significantly
In addition, the high inflation recently somewhat weakened. It has unexpectedly fallen significantly due to a slackening surge in energy prices. In December, consumer prices climbed by 9.2 percent within a year, according to an initial estimate from the statistics office Eurostat on Friday. The inflation rate was still 10.1 percent in November and 10.6 percent in October. Economists had only expected a decline to 9.7 percent.
the inflation has thus weakened for the second month in a row. Despite the renewed decline, it is still more than four times the European Central Bank’s (ECB) medium-term target of two percent. The currency watchdogs consider this level to be appropriate for the economy in the 20-country community. According to preliminary estimates by Statistics Austria, the harmonized inflation rate (HICP) for Austria, which is used to compare the euro area, was 10.5 percent in December.
The energy prices heated the inflation again in December, even if the price increase was no longer quite as strong. Energy prices rose by 25.7 percent year-on-year, after 34.9 percent in November. Food, alcohol and tobacco prices rose 13.8 percent from 13.6 percent in November. Non-energy industrial goods prices rose 6.4 percent in December. In November, the increase was 6.1 percent. Services rose 4.4 percent in December, after 4.2 percent in November.
Rate hikes also in the new year
ECB boss Christine Lagarde recently signaled that the ECB will continue on its course of raising interest rates in the new year. In the fight against the high price pressure, the central bank raised key rates by 0.50 percentage points at its interest rate meeting in December. After two jumbo rate hikes in September and October, it took its foot off the gas by 0.75 percentage points. Lagarde promised that the rate of increases of half a percentage point would probably be maintained at the coming meetings. The next ECB interest rate meeting is on February 2nd. The euro central bank has already raised interest rates four times in a row within just a few months. The deposit rate that is decisive on the financial markets and that banks receive for parking excess funds at the central bank is currently 2.00 percent.
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