Eurozone Inflation Picks Up as Services Prices Accelerate — Update

By Paul Hannon

The annual rate of inflation in the eurozone rose further above the European Central Bank's target in November, making another cut in the key interest rate less likely.

The European Union's statistics agency Tuesday said consumer prices in the 20 countries that share the euro were 2.2% higher than a year earlier, an increase in the annual rate of inflation from the 2.1% recorded in October. The ECB targets an inflation rate of 2%.

Economists surveyed by The Wall Street Journal last week had expected the inflation rate to be unchanged.

A third straight month of faster rises in the prices of services was one of the drivers behind the pickup in inflation.

However, that is unlikely to greatly concern most policymakers, since they expect wage increases to slow in 2026, bringing inflation down below target. Many services are labor intensive. The core rate of inflation, which excludes food and energy prices, was unchanged at 2.4%.

Figures also released Tuesday by Eurostat showed the eurozone's unemployment rate was unchanged at 6.4% in October. However, the September figure was revised up from 6.3%.

The ECB next meets on Dec. 18, and is expected to leave its key rate at 2%. With ECB President Christine Lagarde having declared that policymakers are in "a good place," economists see little reason for the central bank to change policy over the coming year.

The Organization for Economic Cooperation and Development Tuesday said it expects the eurozone's rate of inflation to average 1.9% in 2026 and 2% in 2027. The Paris-based research body said it expects the ECB to keep its key rate at 2% for the next two years.

"While the euro appreciation places downward pressure on inflation, short-term upward inflationary pressures still stem from ongoing labour shortages and additional public expenditure," the OECD said.

The OECD raised its growth forecast for the eurozone economy in 2026 to 1.2% from 1% in September, and sees an acceleration to 1.4% in 2027. But it said growth could be even weaker.

"Worsening trade tensions would weigh on external demand, while trade deflected towards the European Union by the tariffs applied by the United States could reduce demand for domestically produced goods," it said.

Economists at BNP Paribas expect the eurozone economy to grow by 1.5% next year, a more optimistic forecast than the consensus, supported by the rollout of a spending package of up to 1 trillion euros ($1.161 trillion) by the German government.

"The fiscal stimulus will be more effective than many assume," said Luigi Speranza, the bank's chief economist.

As a result of stronger growth, Speranza expects the ECB's next move to be an increase in its key rate, but not until the second half of 2027.

Write to Paul Hannon at paul.hannon@wsj.com

(END) Dow Jones Newswires

December 02, 2025 06:04 ET (11:04 GMT)