Two parents and their two children walk through a section of sweet cakes, biscuits and jam.
Nicolas Guyonnet | Afp | Getty Images
Euro zone inflation eased to 2.4% in February but came in slightly above analyst expectations, according to flash data from statistics agency Eurostat out on Monday.
Economists surveyed by Reuters had expected inflation to dip to 2.3% in February, down from the 2.5% reading of January.
So-called core inflation, which strips out energy, food, alcohol and tobacco costs, hit 2.6% in February, just below the 2.7% print of the previous month.
The closely watched services inflation reading, which has proven sticky over recent months, also eased, coming in at 3.7% last month, compared to the January reading of 3.9%.
The Monday figures also pointed to a sharp slowdown in energy price hikes, which were up just 0.2% in February, versus 1.9% in the first month of the year.
“February’s decline in headline inflation was encouraging because it was partly due to lower services inflation,” Jack Allen-Reynolds, deputy chief euro zone economist at Capital Economics said in a note on Monday.
“We think February’s decline in services inflation is the start of a trend that will pull the core rate down substantially this year,” he added.
Headline inflation is meanwhile expected to remain around its current levels, Allen-Reynolds noted, as energy prices are expected to rise slightly and food inflation is forecast to stay above the 2% mark.
However, depending on how the current geopolitical situation develops, this could eventually impact inflation, Bert Colijn, chief Netherlands economist at ING, noted Monday.
“Geopolitical developments are making the inflation outlook highly uncertain at the moment. Think, for example, of uncertainty surrounding a trade war and energy prices,” he said.
Repeated threats from U.S. President Donald Trump to impose tariffs on goods imported from Europe have left investors and economists unsure about the outlook for inflation and economic growth. Tariffs are often seen as inflationary, and trade with the U.S. is a key pillar for several major European countries, especially the EU’s largest economy, Germany.
Euro zone inflation re-accelerated in the fourth quarter, but European Central Bank policymakers remain optimistic about its trajectory. Accounts from the central bank’s January meeting last week showed that policymakers believed inflation was on its way to meeting the 2% target, despite some lingering concerns.
The ECB meets again later this week and is widely expected to announce another interest cut, which would mark its sixth reduction since it started easing monetary policy back in June.
Markets will also pay close attention to the ECB statement accompanying the rate decision, searching for clues on policymakers’ assessment of inflation and monetary policy restrictions.
“For the European Central Bank, the big question is how low it will go,” ING’s Colijn said, adding that the Monday data will support the view that inflation is currently “fairly benign,” but that it will not provide a strong basis for how low rates should be.
“We expect another 0.25ppt cut later this week to be accompanied by a fiercer debate on when the ECB will reach its terminal rate,” he said.
The Monday data comes after several major economies within the euro zone reported inflation data last week. Provisional data showed that February inflation was unchanged at a higher-than-expected 2.8% in Germany, but eased sharply to 0.9% in France. The readings are harmonized across the euro zone to ensure comparability.
