Inflation in the eurozone rose to 2.4% year-on-year in December, up from 2.2% in November, according to preliminary data from Eurostat. While the increase matched economists’ forecasts, it highlighted ongoing inflationary pressures in the region, complicating efforts by the European Central Bank (ECB) to meet its 2% target.

On a monthly basis, consumer prices rose by 0.4%, reversing the 0.3% decline seen in November. Core inflation, which excludes volatile items like food and energy, remained steady at 2.7%, in line with expectations. Despite the stable core inflation, the persistent inflationary challenges are expected to keep the ECB focused on further action.

Among the key contributors to inflation, services remained the leading category, with an annual rate of 4%, slightly up from 3.9% in November. Food, alcohol, and tobacco prices stayed steady at 2.7%, while non-energy industrial goods saw a slight decrease in inflation, easing to 0.5% from 0.6%. Energy prices rebounded significantly, rising 0.1% year-on-year after a -2% drop in November, reflecting higher fuel costs in some eurozone countries.

Kyle Chapman, an analyst at Ballinger Group, suggested that the inflation rise was unlikely to alter the ECB’s course. “This figure does close to nothing in terms of altering the path for the ECB,” Chapman said. He noted that Frankfurt had been anticipating a temporary rise in inflation and is likely to overlook it for now.

Regional Variations in Inflation

Inflation rates varied widely across eurozone countries. Croatia led with the highest annual rate at 4.5%, followed by Belgium at 4.4%. Other significant readings included Germany at 2.8%, Greece at 2.9%, and Spain at 2.8%. In Belgium and Germany, monthly inflation rose by 0.7%, the second-highest across member states.

Ireland recorded the lowest annual inflation rate at 1%, but saw a notable monthly spike of 0.9%. In contrast, Italy, with one of the lowest annual rates at 1.4%, had only a 0.1% monthly rise. France’s inflation increased to 1.8%, the highest since August, while Spain saw a 2.8% inflation rate, the highest since July 2024.

Market Reactions

Despite the inflation data aligning with expectations, financial markets reacted mildly. Shorter-dated eurozone bond yields, which had spiked following Germany’s surprise inflation report on Monday, edged lower. The two-year Schatz yield fell 3 basis points to 2.18%, while the benchmark 10-year Bund yield held steady at 2.45%.

The euro continued its upward trend, rising 0.4% to $1.0430, as market expectations remain focused on future ECB rate cuts. Traders are anticipating a 25 basis-point cut at the ECB’s meeting on January 30, with over 100 basis points of cumulative cuts expected throughout 2025.

European equity indices traded slightly higher, with the Euro STOXX 50 and STOXX 600 up 0.2%. Germany’s DAX also gained 0.2%, while France’s CAC 40 outperformed, rising 0.4%. Italy’s FTSE MIB lagged, slipping 0.1%.

Sector-wise, luxury and consumer goods stocks outperformed, with Adidas rising 2.2%, while banks underperformed, with the Euro STOXX Banks Index down 1.1%. Notable declines were seen in Deutsche Bank, which fell 1.6%, and Ireland’s AIB Group, which dropped 1.8%.

Nippon Steel and US Steel have filed a lawsuit against the US government, alleging political interference in President Joe Biden’s decision to block Nippon Steel’s $14.9 billion takeover of US Steel. The companies claim Biden “ignored the rule of law” to curry favor with trade unions and advance his political agenda.

The lawsuit comes after Biden rejected the deal on Friday, citing national security concerns and the need for a strong, domestically-owned steel industry to support critical supply chains, including those for the automotive and defense sectors. Biden argued that allowing the acquisition would undermine US interests despite its potential to bolster Nippon Steel’s competitiveness against China’s steel dominance, which accounts for 60% of global production.

Political Context and Allegations

The proposed takeover, first announced in December 2023, had been in limbo for months. Biden’s decision to block the deal aligns with a campaign promise to protect domestic industries, particularly in Pennsylvania, a key swing state where US Steel is headquartered.

Nippon Steel and US Steel have requested a court-ordered review of the purchase, accusing the Committee on Foreign Investment in the US (CFIUS) of failing to conduct a “good faith, national security-focused regulatory review.” The companies also filed lawsuits against United Steelworkers President David McCall and Cleveland-Cliffs CEO Lourenco Goncalves, alleging “illegal and coordinated actions” to obstruct the deal.

McCall, who supported a $7.3 billion acquisition bid from Cleveland-Cliffs in mid-2023, defended Biden’s decision, stating it safeguarded national security and protected the domestic steel industry.

Japanese Concerns

The move has drawn criticism from Japan. Prime Minister Shigeru Ishiba expressed concerns about the decision’s potential impact on trade relations between the two G7 allies. “We must insist on an explanation as to why there are security concerns; otherwise, there will be no progress in future discussions,” Ishiba said on Monday.

Nippon Steel has reiterated its commitment to investing $2.7 billion in US Steel and emphasized that the acquisition would strengthen the US steel industry, particularly against competition from China.

Future Uncertainty

The lawsuit’s outcome could hinge on the next administration, but prospects remain uncertain. President-elect Donald Trump has also vowed to block the deal, arguing it would undervalue US Steel amid plans for sweeping tariffs on foreign imports.

“Why sell US Steel now when tariffs will make it a much more profitable and valuable company?” Trump wrote on Truth Social, referencing his plans to reintroduce protectionist measures similar to those from his first term.

Economic analyses of Trump’s 2018 tariffs indicate mixed outcomes: modest job gains at steel manufacturers but job losses in other sectors affected by higher steel costs.

The legal battle underscores the tensions between economic nationalism and global trade relations, leaving the fate of the acquisition—and its broader implications for US-Japan ties—in limbo.