EU area inflation is on the rise, with Eurostat reporting that annual inflation is expected to be 2.4% in December 2024, up from 2.2% in November.
Services are expected to have the highest annual rate in December at 4.0%, compared with 3.9% in November. Energy went from a decline in November (-2.0%) to a slight increase in December (0.1%).
The low mark in 2024 was in September, when inflation was reported at 1.7%. Since then, it has been on the rise – a worrying trend for the European economy.
Ilya Volkov, CEO and co-founder of YouHodler, commented on the news, predicting the data is unlikely to influence the European Central Bank’s monetary policy as the bank will likely await more data. However, the disappointing data could shift comments emerging from the bank as policymakers aim to talk the Euro higher.
“Any potential strengthening of the euro resulting from this rhetorical shift would likely be temporary and limited, serving only to stabilize or slightly reverse its downward trend rather than indicating a long-term recovery,” said Volkov. “Regarding the current unemployment rate, it is too early to identify any definitive trends in this area. Markets are gradually resuming normal activity following the holiday season. It will be more effective to wait for the next 2-3 macroeconomic reports on the European labor market, which will provide greater clarity on emerging trends for this year. Therefore, we do not anticipate that the current unemployment data will alter the ECB’s approach to its monetary policy.”
Volkov mentioned the problematic budget deficit in the US, and the cost to service this debt, and the fact it is probably going higher as the new administration deals with tax legislation.
“As the U.S. seeks to attract increasing amounts of capital into its economy, demand for the U.S. dollar is expected to rise, pushing its value higher in global markets. This trend could negatively impact the EUR/USD currency pair further. As a result, we believe the ECB should adopt a cautious approach to rate cuts to avoid adding further pressure on the euro.”
In regard to the impact on crypto markets, Volkov does not expect the same rapid growth seen in 2024.
“The primary driver of cryptocurrency growth last year was the launch of ETFs, which spurred significant demand for crypto assets among retail investors. In 2025, we anticipate a correction in global stock indexes, which could also impact cryptocurrency ETFs and lead to a decline in crypto valuations. It is difficult to predict the depth and duration of this correction, but a key indicator will be the performance of the S&P 500 index, which often sets the tone for other global stock markets.”