Inflation, which had hit Europe's economy, eased again in February, falling to 2.6% as high interest rates, subdued oil and gas prices and slowing growth held back price increases.
The European Union's statistics agency Eurostat said on Friday that the February figure for the 20 countries that use the euro currency compared with 2.8% in January.
Inflation is now well below the peak of 10.6% hit in October 2022, after Russia cut most of its natural gas supplies and energy prices soared.
However, recovery to the 2% inflation rate, the target set by the European Central Bank, is taking time. Food inflation fell from 5.6% to 4%, providing some relief to people with modest incomes who spend more of their paychecks on essentials than the wealthy. Another factor was energy prices, which fell 3.7%.
One key sign that inflation was losing momentum was so-called core inflation, which excludes changes in food and fuel prices. The figure, closely watched by the European Central Bank as an indicator of the economy's underlying inflationary pressures, stood at 3.1%, down from 3.3% and the lowest level since March 2022.
Prices soared as Russia cut off most natural gas supplies to Europe, sending energy prices through the roof and as the post-pandemic recovery disrupted supplies of parts and raw materials. Although these problems have been alleviated, the loss of purchasing power has slowed the economy and many workers have yet to catch up through new wage deals.
The fall in inflation will bring the European Central Bank closer to its goal of 2% inflation, which is considered the best for the economy. The euro zone central bank quickly raised interest rates to keep inflation out of the economy, raising its key policy rate to a record high of 4% in September.
Rising interest rates make it more expensive to buy things on credit, reducing demand for goods and putting upward pressure on prices to counter inflation. However, rising credit costs could constrain growth, and Europe is running out of credit costs. The euro area showed zero growth in the last three months of last year, following a 0.1% contraction in the previous quarter.
Concerns about growth and moderate inflation have shifted focus to when the ECB will start cutting interest rates. The bank's rate-setting governing council will meet on Thursday, but there are no plans to change rates yet.
Carsten Brzeski, Global Head of Macro at ING Bank, said the Governing Council and ECB President Christine Lagarde will continue to monitor wages and prices to ensure that inflation is under control before the June interest rate cut. It said it would likely wait for further data.
