Inflation is falling significantly, but the central bank should keep key interest rates at a high level for a while. Otherwise, many people risk a further loss of wealth and purchasing power.
The inflation rate in the euro zone fell to 2.4 percent in November. This is remarkable because a year ago inflation was still at ten percent. The European Central Bank (ECB) appears to have almost accomplished its mission after raising the key interest rate from zero to 4.5 percent at a record pace since July 2022. In the meantime, demand for credit has fallen, particularly evident in the real estate market. Germany and other EU countries are no longer growing and are in a slight recession. This is exactly the effect that a tight monetary policy aims to achieve: cooling the economy in order to reduce price pressure. It seems to be working.