Lower inflation figures for the eurozone and its major economies will come as a relief to the ECB, which will make its next interest rate decision next week.
advertisementInflation in the euro zone slowed to 2.6% in February compared to the same month last year, from 2.8% the previous month, but not as low as the 2.5% expected by analysts.
Preliminary Eurostat estimates released on Friday show that consumer price inflation in the euro area is at its slowest level in three months, but remains below the European Central Bank's (ECB) target inflation rate of 2. %.
Key components and trends
Of the main components of inflation in the euro area, food, alcohol and tobacco are expected to have the highest annual rate of increase in February at 4.0%, down from 5.6% in January.
Services industries followed closely at 3.9%, compared to 4.0% in January. Non-energy industrial products fell to 1.6% from 2.0% in January. Energy prices fell -3.7% compared to -6.1% in January.
The CPI index rose 0.6% from January, a sharp reversal from the previous month's 0.4% decline, and the fastest acceleration since April 2023. Energy items rose 1.5% from January, and services rose 0.8%.
Core inflation, excluding energy and food, fell from 3.3% to 3.1% year-on-year in February 2024, the lowest level since March 2022, but more than expected to decline to 2.9%. Ta. The core inflation rate changed by 0.7% last month, the largest increase since April 2023.
In her recent speech to the plenary session of the European Parliament, ECB President Christine Lagarde reiterated the general view that the current disinflationary trend is expected to continue. However, he stressed the need for the Board to maintain confidence that this trajectory will ultimately sustainably lead the economy towards its 2% inflation target.
Differences between member countries
Contrasting inflation trends were observed within the euro area, highlighting the diversity of economic conditions among member countries.
Croatia recorded the highest annual inflation rate of 4.8% in February 2024, while Italy had the lowest at 0.9%. Belgium had the highest month-on-month increase in inflation at 2.4%, followed by France and the Netherlands at 0.9%.
On Wednesday, preliminary figures for Germany's inflation rate showed that it was falling faster than expected. The annual rate of change in the CPI basket in February 2024 was 2.5%, down from 2.9% last time and also lower than the expected 2.6%.
Conversely, inflation rose unexpectedly in France and Spain, and both fell more slowly than expected.
market reaction
Market expectations for a rate cut by the European Central Bank remain strong, although the outlook is less clear than a month ago.
In early February, speculators were betting on a rate cut of more than 160 basis points, suggesting six cuts of 25 basis points were fully priced in by the end of the year. However, this time the outlook was downgraded to four times.
After the inflation announcement, the euro remained relatively stable against the dollar at 1.0810.
Bond yields resumed their upward trend after weaker-than-expected German inflation pushed yields higher on the back of strong economies in France and Spain.
The yield on the German 10-year Bundestag was 2.40% on Friday, down about 10 basis points from Thursday's high.
