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”.
Kamil Kobar, senior economist at Moody’s Analytics, said the numbers were “mixed.”
“The decline to 2.8% was welcome news, especially compared to the ECB’s forecast of higher inflation. However, this was driven by an energy downside surprise and given the end of government intervention. It’s even more shocking.” Kovar said in his emailed comment.
“However, core inflation is only trickling down, with particularly strong entry into the service sector. Part of this positive outlook is explained by regular annual repricing and reweighting. But despite this, the rate cut in March will become a pipe dream and a rate hike will take place.” [the] April cut bar. “Our basic forecast for a rate cut in June remains unchanged.”