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Inflation in the euro zone fell to 2.6% in February, but the figure was higher than economists expected as living costs for consumers continued to rise at a still high rate.
The annual rate of increase in consumer prices in the 20 euro member countries slowed from 2.8% in January, data released by the EU's statistics office on Friday showed. The interest rate was slightly higher than the 2.5% forecast by economists polled by Reuters.
The continued weakness in the cost of living for European consumers will be welcomed by the European Central Bank, which will meet next week to discuss when to cut interest rates, amid signs that the economy remains in stagnation.
However, many rate-setters are likely to be concerned that rapid wage increases are still pushing up prices in the labor-intensive service sector, where inflation has risen in the year to February. The rate slowed slightly to 3.9% from 4% last month.
“The ECB is concerned about the persistence of domestic inflation,” said Tomasz Wiladek, an economist at investment firm T. Rowe Price, adding that services inflation was “clearly too strong.”
Core inflation, which excludes energy and food prices to give a more accurate picture of underlying price pressures, fell more slowly than economists expected, falling from 3.3% in the year to January to 3.3% in February. It was 3.1%.
Eurozone fresh food prices rose 2.2% in February, the weakest growth since 2021, while manufactured goods prices rose 1.6%, the lowest in almost three years. However, energy inflation rose slightly.
Inflation in the euro zone has fallen sharply from a peak of 10.6% in October 2022 since the disruption of the coronavirus pandemic and Russia's invasion of Ukraine triggered the biggest price spike in a generation. This has raised expectations that the ECB will begin cutting back on borrowing soon. Costs rose significantly after raising the base interest rate to a record high of 4% last year.
Senior ECB policymakers have downplayed the possibility of an imminent rate cut. Some sources have suggested that monetary policy is unlikely to be eased before June to give time to see whether wage pressures have eased enough for inflation to reach the 2% target. are doing.
Underscoring the strength of Europe's labor market, the euro area unemployment rate hit a record low of 6.4 in January, after December's figure was revised slightly upwards to 6.5% and the number of unemployed fell by 34,000. Returned to %.
Paul Hollingsworth, an economist at French bank BNP Paribas, said that with eurozone services inflation remaining higher than expected, “people are becoming more determined to wait until June to start the rate-cutting cycle. However, he said he thought it was unlikely the ECB would wait until September.
The ECB is expected to announce a new outlook after next week's Governing Council meeting. Goldman Sachs expects euro zone inflation to be revised downward to 2.7% to 2.3% this year and 2.1% to 2% next year.
