08:48 AM EST, 11/28/2024 (MT Newswires) -- Thursday's flash estimate of German inflation in November wraps up a good day for the European Central Bank hawks, said ING.

With headline inflation accelerating and economic sentiment stabilizing, opposition against a 50bps rate cut at the December meeting will grow stronger, wrote the bank in a note.

German headline inflation came in at 2.2% year on year, up from 2.0% in October. Back in September, headline inflation was still at 1.6% year over year, The European inflation measure came in at 2.4% year over year, unchanged from October.

Thutday's rebound in German inflation was mainly the result of less favorable energy base effects, while at the same the timing of school vacation during the fall season inserted downward pressure on headline inflation, stated ING.

Looking ahead, the stickiness of inflation at slightly too high a level still looks set to continue as favorable energy base effects will continue petering out while wages are increasing, pointed out the bank. However, with the current turning of the labor market, wage growth should come down more significantly than previously thought, leading to more disinflationary pressures next year.

As a result, ING continues to expect inflation to remain within the broad range of between 2% and 2.5% in 2025.

With Thursday's surprise -- but meager -- improvement in eurozone sentiment and now German inflation, some ECB members might start doubting both the October rate cut decision and the opening to even larger rate cuts at the December meeting, added the bank.

What remains is the genuine idea of almost all ECB officials that the rate-cutting cycle will continue. The only question is for how long and how far. Wednesday's remarks by ECB policymaker Isabel Schnabel stressed the hawkish case, which is one of a very gradual process of cutting rates.

However, even more important than the debate about 50bps or 25bps at the December meeting is the question of how far the ECB will eventually go with rate cuts. Here, Schnabel tried to mark her preferred terminal rate of between 2% and 3%, while Chief Economist Philip Lane's comments earlier on suggested that the ECB could clearly go below any neutral interest rate level next year.

In any case, having been slow to address rising inflation and arguably late in stopping rate hikes last year, the ECB now appears determined to get ahead of the curve and return interest rates to neutral as quickly as possible, according to ING. For the doves, this is a no-brainer, and for the hawks, the argument might be that getting rates back to neutral quickly could be enough to avoid another episode of unconventional monetary policy with quantitative easing and negative interest rates further down the line.

Thursday's macro data releases in the eurozone, however, should encourage the ECB hawks to object to a 50bps rate cut in December and the case for a 25bps rate cut is growing.

A 50bps rate cut decision would be a security move to preempt any potential risks for the eurozone economy coming from the next US administration's potential economic policy choices. A 25bps rate cut decision would rather follow the cautious meeting-by-meeting approach, though running the risk of not yet getting ahead of the curve.

The bank will wait for Friday's eurozone inflation numbers to finally make up its minds.