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The annual inflation rate in the euro zone rose to 2.3% in November, statistics agency Eurostat said on Friday, climbing back above the European Central Bank's 2% target.
Economists polled by Reuters had expected an annual rate of 2.3% for the month, up from 2% in October.
Price increases in the bloc have been higher for two months in a row, after falling to 1.7% in September, as expected due to the waning deflationary impact of energy prices.
Core inflation, excluding fluctuating energy, food, alcohol and tobacco prices, remained at 2.7% for the third straight month in November.
The core rate is supported by ongoing inflation in the services sector, which fell only slightly to 3.9% in November from 4% in the previous month.
Markets have fully priced in a 25 basis point rate cut by the ECB in December, which would mark the institution's fourth rate cut this year.
Speculation that the central bank could be pushed for a larger 50 basis point rate cut has eased since last month after the euro area's weak growth outlook improved slightly and inflation picked up again.
Inflation was slightly higher than forecast in October, while ECB policymakers, including board member Isabel Schnabel, stressed the need for caution in easing monetary policy.
The ECB's decision will largely depend on the latest macroeconomic forecasts from its staff, which it will receive shortly before its upcoming meeting on December 12th. The central bank will also weigh the potential global impact of Donald Trump's recent election as U.S. president, including whether he will follow through on his threats of universal trade tariffs and how such a move would affect European Union exports.
The euro was little changed against the US dollar and the British pound after the data was published.
Kyle Chapman, foreign exchange market analyst at Ballinger Group, said in an email that the increase in headline inflation was entirely due to year-on-year volatility in energy prices and that the ECB would view a 0.9 percentage point month-on-month decline positively. monthly inflation in the services sector.
“Given the weak growth picture, there is still no doubt that inflation will fall to 2% on a sustained basis next year,” Chapman said, adding that the market still appeared to have settled to a move of 25 basis points in December seemed .
“The economy is not crashing yet and there is uncertainty about where the neutral rate is. Therefore, there is no urgent need to move forward with reductions,” he noted.
Melanie Debono, senior European economist at Pantheon Macroeconomics, said inflation numbers combined with recent data showing record low unemployment and higher negotiated wage growth in the third quarter would prevent a 50 basis point cut.
The final monetary policy decision will still remain a “close call” as the ECB's more dovish members are pushing hard for a 50 basis point rate cut, Debono said. If the central bank does stick with a 25 basis point rate cut, it will likely follow that move with cuts of the same size at its two subsequent meetings in January and March, she added.
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