Core inflation, however, dropped from 3.6% to 3.4%, while food inflation also continued its decline, with the increase in prices largely driven by energy base effects in Germany.

The rise comes as questions swirl over when the European Central Bank will begin to cut interest rates, with the bank’s next meeting due on 25 January. Markets are currently pricing in six rate cuts throughout the year, starting in March.

Fed minutes warn rates could remain high ‘for some time’

Neil Birrell, CIO at Premier Miton Investors, said the data had been “much as expected”.

“There was a short-term impact from a pick-up in energy prices, but that should fall away, and the ECB will be happy with the overall trend,” he explained.

“While markets probably got a bit ahead of themselves in their expectations for rate cuts, the prospect of sizable cuts in 2024 remains in place in the face of a slowing economy.”

UK economy teeters on recession following revised ONS figures

Daniele Antonucci, CIO at Quintet Private Bank, added that the rise in energy prices was largely due to the phasing out of German energy subsidies, “plus a 2024 budget that hikes taxes and scraps other subsidies”.

He explained: “We think the Eurozone is currently in a mild technical recession. Manufacturing activity has been contracting since the start of 2023, while services have started decelerating more visibly in recent months.

“So, as the impact of past rate increases feeds through to the economy and further slows inflation, rate cuts in the Eurozone could come from mid-year or even somewhat earlier.”