Eurozone inflation dips further in February

Eurozone inflation continued to ease in February, data showed Friday, but economists warned it was unlikely to push the European Central Bank to cut interest rates next month.

Consumer prices in the 20-nation single currency area rose 2.6 percent in February from a year earlier, down from a 2.8-percent rise in January, the EU’s statistics agency said.

Analysts surveyed by Bloomberg and FactSet had predicted that the rate of inflation would fall to 2.5 percent.

The eurozone’s inflation rate has been slowing steadily since its peak in October 2022, approaching the ECB’s two-percent target.

The ECB is under pressure to cut interest rates after keeping them unchanged since October at a two-decade high, but experts warned not to expect a reduction in April.

“February’s eurozone inflation data look like the final nail in the coffin for an April interest rate cut,” said Jack Allen-Reynolds of Capital Economics, an economic research firm.

The Frankfurt-based ECB’s hike in rates following the Russian invasion of Ukraine in 2022 has affected the eurozone economy, with expectations of weaker growth in 2024.

The next rate-setting ECB meeting will be on March 7.

“As long as the ECB is not willing to accept that inflation is roughly returning to target but instead pushing for an exact landing point of 2 percent, rate cuts should only be on the agenda at the June meeting,” Carsten Brzeski of ING Bank said in a note before the inflation data was published.

Core inflation, which strips out volatile energy, food, alcohol and tobacco prices and a key indicator for the ECB, also slowed in February, to 3.1 percent from 3.3 percent in January.

The February reading of core inflation is the lowest in two years. Yet analysts had forecast a deeper fall, to 2.9 percent, in February.

Low unemployment

ECB chief Christine Lagarde told the European Parliament this week she expected “inflation to continue slowing down” but wanted to be sure that price rises fall “sustainably” to two percent.

The EU last month cuts its eurozone inflation forecast for 2024 to 2.7 percent from 3.2 percent in earlier prediction.

But Brussels expects the single currency economic area to grow by only 0.8 percent this year, down from predicting 1.2 percent in its previous forecast.

There was a welcome slowdown in the increase in food and drink price costs, which rose 4.0 percent in February, significantly below their 5.6 percent increase in January, the data showed.

Energy prices in the eurozone actually fell, though their 3.7 percent drop last month was much narrower than the 6.1 percent decline in January.

Across the European Union, Latvia registered the lowest inflation rate in February, at 0.7 percent, according to Eurostat.

Inflation fell in the EU’s two biggest economies.

The rate of consumer price rises in Germany slowed down to 2.7 percent last month, from 3.1 percent.

And in France, inflation dropped to 3.1 percent in February from 3.4 percent in January, according to the data.

Other Eurostat data published Friday showed the unemployment rate in the eurozone fell to a historic low of 6.4 percent in January, from 6.5 percent in December.

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