Patrons sit at a sidewalk table at Janis Bar in Cais do Sodre in Lisbon, Portugal.
Horacio Villalobos | Corbis News | Getty Images
Headline inflation in the euro zone eased slightly in January, but the decline in the core reading was smaller than expected, preliminary figures released by the European Union’s statistics office on Thursday showed.
The annual headline inflation rate was 2.8%, in line with economists’ forecasts compiled by Reuters. Inflation in December was 2.9%, up from 2.4% in November, mainly due to the reduction in energy price support measures.
Core inflation fell to 3.3% in January from 3.4% in December. Last month, it fell to 3.2%, according to Reuters forecasts.
Sectorally, services inflation (an important indicator for policymakers because of its link to domestic wage pressures) stabilized at 4%. The disinflationary impact from the energy market continued to decline from -6.7% to -6.3%.
Economic growth in the region is stagnant.
Preliminary figures released earlier this week showed Germany’s inflation rate was slightly weaker than expected, reaching 3.1%. Germany’s gross domestic product (GDP) shrank by 0.3% in the fourth quarter, with the euro zone’s biggest economy a major drag on growth.
European Central Bank officials are monitoring a slew of data to determine if and when they can start lowering interest rates from their current record highs. The inflation rate has slowed significantly from its peak of 10.6% in October 2022, and the central bank’s 2% target is now within sight.
Markets continue to price in cuts starting in April, but some policymakers have pushed back by suggesting cuts are likely to occur in the summer or later. The ECB emphasizes that it remains data-dependent.
At last week’s monetary policy meeting, where interest rates were left on hold, ECB President Christine Lagarde said that despite interest rates rising in December, “the process of defusing inflation is underway”.