Eurostat's preliminary estimates showed the euro zone's inflation rate was 2.6% year-on-year in February, down from 2.8% in January but higher than economists expected. The European Central Bank is expected to lower its inflation expectations at its March 7th board meeting, but leave interest rates unchanged.
“Inflation in the euro area continued its downward trend in February, with price increases at 2.6%, down from 2.8% in January and 2.9% in December. This was slightly above the expected 2.5% rise. But at least things are moving in the right direction,” said Michael Field, European market strategist at Morningstar.
The core inflation rate, which measures prices excluding energy and food costs, also fell to 3.1% from the previous year. In January, it was 3.3%.
The biggest contributors to euro area inflation in February were food, alcohol and tobacco (up 4% year-on-year), followed by services (up 3.9%), non-energy manufactured goods (up 1.6%) and energy (down 3.7%). ). , according to Eurostat estimates.
“Core inflation followed suit, at 3.1%, the first month-on-month decline since July 2023, confirming that record high interest rates are indeed having a visible impact. ” added Field. “Taken together, these numbers could lead to stronger calls for the ECB to cut interest rates sooner rather than later.”
Will the ECB cut interest rates on March 7th?
The slowdown in price increases has led to growing expectations that the European Central Bank (ECB) will revise its inflation outlook downward at its monetary policy meeting on March 7th.
European stock markets rose following the release of the statistics.
“Despite moving closer to their respective inflation targets, central bankers in the US and Europe appear hesitant to cut interest rates,” Jonathan Gregory, head of UK fixed income at UBS Asset Management, said in a recent note. ” he said.
“We said in January that market prices were ahead of schedule in terms of rate cuts already discounted to summer 2024 in the US and the euro area.
“As we write this article, market expectations are that the Federal Reserve and European Central Bank will each cut rates twice by the end of July, compared to almost four rate cuts in the same period a few weeks ago. We are suggesting that they will cut rates (assuming each rate cut is 0.25%). Current pricing seems much more reasonable to us.”
The ECB will continue to monitor wage data. “There has been no noticeable movement in the labor market since the peak of the pandemic, which has accelerated wage inflation,” Candium economist Emile Gagna said. We will continue to be cautious.” This destabilizes inflation expectations and contributes to price increases. ” However, according to Gagna's predictions, the risks appear to be limited.
