Ireland's inflation rate slows sharply with hope that peak has passed

The figure reflects slowdowns in Germany, France, Italy and Spain and was less than the 9.5% that economists had expected.

Prices in Ireland jumped 8.2% compared to December 2021, down from 9% in November. Picture Denis Minihane.

Ireland's inflation rate has fallen again dropping to 8.2% in December, a rate not seen since May of last year.

Combined with inflation drops in other countries it means euro-area inflation returned to single digits for the first time since August, fueling hopes that the bloc’s worst-ever spike in consumer prices has peaked.

Figures from the CSO this morning show prices in Ireland jumped 8.2% compared to December 2021, down from 9% in November.

Energy prices are estimated to have decreased by 6.5% in the month but are up 34.3% since December 2021. 

December’s reading for the Eurozone came in at 9.2%, Eurostat said Friday, with slower growth in energy costs behind the moderation. The figure reflects slowdowns in Germany, France, Italy and Spain and was less than the 9.5% that economists polled by Bloomberg had expected.

Highlighting how inflation continues to menace Europe’s economy, however, a measure of underlying price pressures that strips out energy and food edged up to a record 5.2%.

It’s this gauge that the European Central Bank is likely to focus on as it pushes ahead with what’s already the most aggressive bout of interest-rate hikes in its history. In the US, the Federal Reserve, too, is looking past an easing in headline inflation, warning investors against underestimating its will to tighten monetary policy for some time yet.

A second month of cooling price gains in the eurozone, which expanded to 20 countries from 19 this month as Croatia joined, came after Germany’s government paid some households’ natural gas bills to cushion the surge in costs since Russia invaded Ukraine.

But while slower inflation in the continent’s biggest economy and beyond will be welcomed, the ECB pledged last month to lift the deposit rate past its current level of 2%.

The peak for borrowing costs may only be reached toward the summer, according to Bank of France chief Francois Villeroy de Galhau.

“We’ll then be ready to remain at this terminal rate as long as necessary,” he said Thursday in Paris. “The sprint of rate increases in 2022 becomes more of a long-distance race, and the duration will count at least as much as the level.” ECB Governing Council member Martins Kazaks expects “significant” increases at the next two meetings, in February and March. In Latvia, where he heads the central bank, inflation reached as high as 22% and remains near that now.

President Christine Lagarde has cautioned against focusing on changes in Europe’s headline rate, saying “we cannot be fixated on one single number,” as there are “good reasons to believe” price growth will pick up again in January.

Additional reporting Bloomberg