Prime Highlights:
Eurozone inflation eased to 2.4% in February, slightly lower than January’s 2.5%, but above economists’ expectations of 2.3%.
Core inflation, which excludes energy, food, alcohol, and tobacco, decreased to 2.6% from 2.7% in January.
Key Background:
Eurozone inflation decreased to 2.4% in February, according to flash data from Eurostat, marking a slight dip from January’s 2.5%. While this represents a moderate decline, it still exceeded the 2.3% forecast by economists polled by Reuters. Core inflation, which excludes volatile items such as energy, food, alcohol, and tobacco, stood at 2.6%, also lower than the previous month’s 2.7%.
A notable factor contributing to the easing of inflation was a reduction in services inflation, which dropped to 3.7% from 3.9% in January. Additionally, energy price hikes showed a significant slowdown, rising by only 0.2% in February compared to 1.9% in January. Analysts see this as a positive development, signaling a potential trend towards lower core inflation. Jack Allen-Reynolds, Deputy Chief Eurozone Economist at Capital Economics, suggested that this could lead to a more substantial reduction in the core inflation rate later in the year.
Despite these encouraging signs, inflation is still expected to remain relatively stable due to persistent food inflation and slight energy price increases. Geopolitical risks, such as the possibility of a trade war and the impact of rising energy prices, add uncertainty to the inflation outlook, according to Bert Colijn, Chief Netherlands Economist at ING.
The European Central Bank (ECB) remains optimistic about the inflation trajectory, with policymakers expecting inflation to approach the 2% target. The ECB is widely anticipated to announce another interest rate cut later this week, marking the sixth reduction since June 2024. This move is expected to be accompanied by an assessment of the current economic situation, particularly inflation dynamics and potential monetary policy adjustments. Markets will closely monitor these developments as they weigh the ECB’s next steps in managing economic stability in the region.
