Eurozone inflation eased to 2.4% in February, marking the first decline in four months, according to preliminary data from Eurostat. However, the figure remains above the European Central Bank’s (ECB) 2% target and slightly higher than the 2.3% consensus forecast by Reuters analysts.
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This slight moderation follows a six-month high of 2.5% in January. While the cooling inflation offers a glimmer of hope, it remains a key concern for the ECB as it navigates its monetary policy. The central bank is scheduled to hold a rate-setting meeting later this week, with widespread expectations of a quarter-point interest rate cut to 2.5%.
Inflation Breakdown and ECB Response
A closer look at the inflation components reveals that services continued to experience the highest annual inflation rate at 3.7%, albeit slightly lower than the 3.9% recorded in January. Food, alcohol, and tobacco followed with a 2.7% increase, up from 2.3% in the previous month. Non-energy industrial goods saw a modest rise to 0.6% from 0.5%, while energy inflation plummeted to 0.2% from 1.9% in January, largely contributing to the overall decline in headline inflation.
The ECB has been actively trying to combat inflation through a series of interest rate hikes. In January, the bank lowered borrowing costs by a quarter point for the fifth consecutive time, bringing the key interest rate to 2.75%. This move was driven by confidence that inflation would eventually fall to the target 2% by 2025.
ECB President Christine Lagarde, following the January decision, affirmed that the “disinflation process is well on track” and hinted at further rate cuts. She emphasized a data-dependent approach, stating that the “speed, timing and magnitude of future rate moves” would be determined on a meeting-by-meeting basis.
Looking Ahead
The February inflation data, while showing a slight deceleration, is unlikely to drastically alter the ECB’s course. The central bank remains committed to achieving price stability and will continue to closely monitor incoming economic data. While the disinflationary trend is encouraging, the persistence of core inflation, particularly in services, suggests that the fight against inflation is far from over. The ECB’s upcoming meeting will provide further insights into its policy stance and future actions.
