07:12 AM EST, 01/07/2025 (MT Newswires) -- The eurozone HICP inflation Tuesday came in at 2.44% year-over-year, or 0.1% month-over-month, in the December flash print, in line with Deutsche Bank's forecast of 2.4% year over year and up from last month's 2.24%, said Michael Kirker, European Economist at Deutsche Bank Research.

Core HICP came in at 2.7% year-over-year, again in line with the bank's expectations, noted the economist.

A large proportion of this rise was driven by base effects in energy prices, which will be unlikely to trouble the European Central Bank, stated Kirker. Services prices -- 4.0% year over year -- were around one-tenth stronger than Deutsche Bank expected, while goods were one-tenth weaker at 0.5% year over year.

At the country level, the largest surprise came from German inflation -- HICP 2.9% year over year, he pointed out. Based on the details of the German CPI print, the upside surprise seems to have been driven by core inflation.

However, methodological changes in the CPI computation in December make it more difficult to extract trends in the details. At the eurozone level, this positive surprise in Germany's HICP print was offset by downside surprises for Italy and the Netherlands.

The ECB's seasonally adjusted numbers showed a sharp slowdown in the momentum of month-on-month headline inflation in the November print -- 0.09% versus 0.32% previously, added Kriker. Tuesday's December print showed a bounce back to 0.21%, close to the average pace over the last two years.

The ECB's 'data dependent, not data-point dependent' approach means that it will be cautious about placing too much emphasis on just a few seasonally adjusted monthly numbers.

Although the headline annual services inflation rate has been relatively sticky close to 4%, the momentum in services prices has softened in recent months. Domestic inflation, while still elevated, has started to slow, and wage growth is moderating.

Deutsche Bank remains confident that the slowing service inflation will allow for a sustained return to lower inflation. The bank foresees HICP inflation falling below the 2% target from February onwards.

If Deutsche Bank's forecasts are correct, the combination of sub-target inflation and below-trend growth will open the possibility of sub-neutral ECB policy rates in 2025. The lack of any major downside surprise in Tuesday's inflation print does little to change the view that further gradual easing at the January meeting is the appropriate baseline action, according to the economist.