Inflation in the US rose again in December, to 2.9% from 2.7% the previous month. Nevertheless, investors preferred to focus on the underlying index, which excludes energy and food. This index shows a slight decline to 3.2%, compared with 3.3% the previous month.
It did not take much for investors to think that inflation was finally falling. While they watched with apprehension the chances of several key rate cuts in 2025 evaporating, they immediately started to believe in such a scenario.
This figure has, therefore, allowed a strong rebound in US equities, whose leading indices close the week on a substantial rise, even though it is far from certain that a single figure could change the view of a Federal Reserve that wants to be cautious at this stage.
Nevertheless, the US economy is currently the only major world economy capable of coping with high interest rates without leading to sluggish demand.
After a dry spell this summer, European inflation is picking up again
Given the evolution of energy prices, it is probably not over. In the eurozone, inflation rose to 2.4% in December, compared with 2.2% in November, while core inflation (excluding energy and unprocessed food) remained stable at 2.7% for the fourth consecutive month.
The rise in the main index is due primarily to the rebound in service prices (+4.0% year-on-year and +0.8% compared with the previous month) but also to the fact that energy prices have stopped falling, rising even by 0.6% compared with last month.
The upward movement may not be all that: domestic demand is weak, but soaring energy prices will likely increase consumer prices. First, and this was expected, the various states are gradually reducing their contributions, which has helped limit the impact of the rise in energy prices on households and businesses.
Second, the end of gas transit through Ukraine means higher energy prices, which have reached levels not seen since November 2023.
Nevertheless, this rebound should not call into question the continued downward movement of rates by the European Central Bank. Given the lack of dynamism in our economies and the absence of other levers to stimulate them, our monetary authorities will be under intense pressure to remain on a bearish outlook.
Therefore, the ECB should continue to view the current situation, which should increase the yield differential between the euro and the US dollar. The euro is likely to remain under pressure in foreign exchange markets.
Given the bleak outlook, we are still investing in the euro area through individual shares that we believe to be promising. For the US, we remain invested in this country across all our portfolios.
