ECB may hold rate cuts until end of 2024 after eurozone inflation jump, expert says

The European Central Bank (ECB) may begin cutting interest rates at the end of 2024 after Euro zone inflation jumped last month, an expert has told CGTN Europe.

Inflation across the 20-nation bloc jumped to 2.9 percent in December from 2.4 percent in November, supporting the European Central Bank's case to keep interest rates at record highs for some time, even as markets continued to bet on a rapid fall in borrowing costs.

The data is in line with the ECB's prediction that inflation bottomed out in November and will now hover in the 2.5 percent to three percent range through the year, well above its two percent target, before falling to back inline in 2025.

Speaking on CGTN, Daniel Gros, a director of the Institute for European Policymaking at Bocconi University said he believes the ECB will hold off until potentially the end of 2024, or even beyond that, before beginning to cut interest rates.

"The ECB has to look not only at underlying inflation but also at headline inflation," Gros said. "Who knows where that will stand in six or nine months, because we don't know where oil prices will be going. I would be very cautious to predict rate cuts.

"After all, the ECB was wrong in being too late, and they recognize that now. I don't think they want to make that same mistake a second time."

Speaking on the inflation data itself and the reason for the jump, Gros said: "It is most probably just a statistical effect, because last year the energy prices made big jumps up and down, and that is now reflected one year later in the annual increase of energy prices, which has become less negative than before."

"And that's why the headline inflation rate, which incorporates energy prices, has gone up a little bit but the underlying inflation, which we can calculate taking out energy and food, that is still going down at more or less the same pace as before."

Looking ahead, Gros says he anticipates another period of "very slow growth" for the eurozone in 2024.

"Europe is just not a very dynamic area," he told CGTN's Global Business programme. "And all we can expect basically is to revert to the trend, which we already saw before the COVID crisis three or four years ago - namely an area which grows perhaps 1 to 2 percent per annum, but at very low inflation rates. And we are going back to that pre-war normal."

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