Eurozone inflation continues to decline by 2.6%
The news
Inflation Interest rates in most European economies continued to fall over the past month. Consumer prices in the 20 countries that use the euro as their currency rose by 2.6 percent year on year in February, up from 2.8 percent in January, the European Commission’s statistics office said on Friday.
Why it’s important: Interest rates won’t fall until inflation does.
The sooner inflation comes closer to the European Central Bank’s target of 2 percent, the sooner the bank will be inclined to cut interest rates, which now stand at 4 percent. Christine Lagarde, the bank’s president, has said she expects inflation to continue to slow given how much energy prices have fallen from the nosebleed levels they reached in 2022. The easing of supply chain blockages has also dampened inflationary pressures.
Still, policymakers at the bank remain cautious about when to ease the fight against inflation. At a meeting of the European Parliament this week Mrs. Lagarde noticed this that demand for higher wages was strong, a force that could lead to higher prices. “Wage growth is expected to become an increasingly important driver of inflation dynamics in the coming quarters,” she said.
The bank also keeps a close eye on core inflation, which leaves out volatile food and energy prices. That annual figure fell from 3.3 percent to 3.1, but is still significantly above the nominal figure. Consumer prices for some goods and services are still rising.
Central bankers will meet next week, but most analysts do not expect interest rates to fall until mid-year.
The numbers: scorecards by country.
Europe’s two largest economies, Germany and France, both reported declines in consumer prices. The German annual interest rate fell to 2.7 percent in February, compared to 3.1 percent the month before. France recorded a decline from 3.4 percent to 3.1 percent, the lowest level in two and a half years. In Spain, the annual interest rate fell from 3.5 percent in January to 2.9 percent.
Italy and Latvia had the lowest inflation rates, below 1 percent. Austria, Croatia and Estonia were at the top, with rates above 4 percent.
In short: it’s all about energy prices.
“This is still very much an energy-based story,” said Carsten Brzeski, economist at Dutch bank ING, referring to last year’s price drop. “What we are seeing in terms of annual inflation is that oil, gas and electricity prices are falling.”