Customers at street tables at Janis bar in Cais do Sodre, Lisbon, Portugal.
Horacio Villalobos | Corbis News | Getty Images
Preliminary data released by the European Union’s statistics agency on Thursday showed that overall inflation in the euro zone slowed slightly in January, with core data falling less than expected.
Overall annual prices rose 2.8%, in line with forecasts by economists polled by Reuters. Inflation was 2.9% in December, up from 2.4% in November, mainly due to the gradual end of energy price support measures.
Core inflation fell to 3.3% in January from 3.4% in December. Reuters forecast it would fall to 3.2% last month.
By sector, services inflation – an important indicator for policymakers because of its link to domestic wage pressures – was steady at 4%. The deflationary impact on energy markets continued to weaken, falling from -6.7% to -6.3%.
The group’s economic growth has been stagnant.
Preliminary data released earlier this week showed German inflation slightly higher than expected, at 3.1%. Germany, the largest economy in the euro zone, has become one of the main drags on its economic growth, with its gross domestic product shrinking by 0.3% in the fourth quarter.
ECB officials are monitoring a trove of data to see if and when they can start cutting interest rates from their current record highs. Price growth has cooled significantly from the peak of 10.6% in October 2022, and the central bank’s 2% target is within sight.
While markets continue to price in rate cuts starting in April, some policymakers say a rate cut is more likely to occur in the summer or even later. The ECB stressed that it remains reliant on data.
At last week’s monetary policy meeting, when interest rates were kept unchanged, European Central Bank President Christine Lagarde said that although inflation rose in December, “the deflationary process is at work”.
Kamil Koval, senior economist at Moody’s Analytics, said the data were “mixed.”
“The fall to 2.8% is good news, especially relative to the ECB’s forecast for higher inflation. But it was driven by an unexpected downside move in energy, which is even more alarming given the end of government intervention.” Wahl said in emailed comments.
“However, core inflation was only marginally lower, with the services sector in particular performing quite hotly. While part of the reason for this hot reading is due to regular annual repricing and weighting changes, it still makes a March rate cut a pipe dream and raises the lower the inflation rate.” The threshold for an interest rate cut in April. A rate cut in June remains our baseline forecast. “
