Inflation in the eurozone decreases at the beginning of the year

The news

Inflation in the 20 countries that use the euro fell in the first month of 2024, returning to a downward trend and fueling hopes that eurozone prices were on track back to the European Central Bank's 2 percent target .

Consumer prices in the euro zone rose 2.8 percent in January from a year earlier, up from 2.9 percent in December, the European Union statistics agency reported on Thursday.

Economists had expected a slightly bigger dip. In fact, a correction after the expiration of some government subsidies caused inflation to rise in December.

Why it matters: The timing of rate cuts depends on data

Investors are watching for signs that the European Central Bank will cut interest rates, which policymakers kept at a record high of 4 percent last week. Central bank governor Christine Lagarde has hinted that a rate cut could happen mid-year, but policymakers would look to data to inform their decisions.

The figures released on Thursday may raise expectations that interest rates will fall sooner rather than later. Core inflation, the inflation rate that excludes volatile food and energy prices, continued its downward trend, cooling from 3.4 percent in December to 3.3 percent in January. That figure is crucial for the ECB because it reflects underlying trends in prices across the eurozone.

The European statistics agency said on Tuesday that the euro zone economy stagnated in the fourth quarter of last year, hampered by an ongoing energy crisis and a slump in manufacturing in Germany, Europe's largest economy.

Quotable: “Too early to make everything clear”

“While today's figures still show declining price pressure, it is far too early to provide clarity on inflation,” ING's Peter Vanden Houte wrote in a research note. The ECB will remain cautious, he said, “and will not consider a rate cut before June.”