Two parents and two children walking through some sweet cakes, biscuits and jam.
Nicholas Gainette | AFP | Getty Images
Euro Zone inflation eased to 2.4% in February, but slightly surpassed analysts’ expectations, according to Statistics Agency’s Flash data on Monday.
Economists surveyed by Reuters had predicted inflation would fall to 2.3% in February, starting with a 2.5% read in January.
The so-called core inflation removes the costs of energy, food, alcohol and tobacco, reaching 2.6% in February, just below the 2.7% print of the previous month.
The closely monitored service inflation reading, which has proven sticky in recent months, was also eased at 3.7% last month, compared to the 3.9% reading in January.
Monday’s figures also pointed to a sharp slowdown in energy prices. The energy price hike rose just 0.2% in February, but 1.9% in the first month of the year.
“The decline in headline inflation in February was encouraged, partly due to lower service inflation,” Jack Allen-Reynolds, deputy eurozone economist at Capital Economics, said in a memo on Monday.
“I think the decline in service inflation in February is the beginning of a trend to significantly reduce core rates this year,” he added.
Meanwhile, energy prices are expected to rise slightly, with food inflation projected to exceed 2%, so headline inflation is expected to remain at current levels.
However, depending on how the current geopolitical situation develops, this could ultimately affect inflation, ING’s chief Dutch economist, Bert Collin, said Monday.
“Geopolitical developments make the outlook for inflation very uncertain at this point, considering, for example, trade wars and uncertainty surrounding energy prices,” he said.
The repeated threats from US President Donald Trump to impose tariffs on goods imported from Europe made investors and economists unsure of the outlook for inflation and economic growth. Tariffs are often considered inflation, and trade with the US is an important pillar for some major European countries, especially Germany, the largest economy in the EU.
Eurozone inflation re-accelerated in the fourth quarter, but European Central Bank policymakers remain optimistic about their trajectory. Accounts from the central bank’s January meeting last week showed policymakers believe inflation is ongoing to achieve its 2% target despite some lingering concerns.
The ECB is widely expected to meet again later this week and announce another interest cut, marking its sixth cut since it began easing monetary policy in June.
Markets also pay close attention to ECB statements associated with interest rate decisions and look for clues regarding policymakers’ assessments of inflation and monetary policy restrictions.
“The big question for the European Central Bank is how low it will be,” ING’s Colijn said, adding that Monday’s data now supports the view that inflation is “pretty benign,” but that would not provide strong evidence for how low the prices are.
“We expect an additional 0.25ppt cut later this week to come with intense debate about when the ECB will reach terminal rates,” he said.
Data on Monday comes after several major economies within the eurozone reported inflation data last week. Preliminary data showed that inflation in February was not changing at 2.8%, higher than expected in Germany, but has eased sharply to 0.9% in France. Measurements are harmonized across the Eurozone to ensure comparability.
