Eurozone inflation slows to 2.6% in February

Eurozone inflation eased to 2.6 per cent in February, but the figure was higher than expected by economists as consumer prices excluding energy and food continued to rise at persistently strong rates.

The annual increase of consumer prices in the 20 countries that share the euro slowed from 2.8 per cent in January, according to data released by the EU statistics office on Friday. The rate was slightly higher than the 2.5 per cent rate forecast by economists in a Reuters poll.

The continued decline in the cost of living for European consumers will be welcomed by the European Central Bank, which meets next week to discuss how soon to cut interest rates amid signs the economy remains mired in stagnation.  

However, many rate-setters are likely to worry that rapid wage growth is still pushing up prices in the labour-intensive services sector, where inflation slowed only slightly to 3.9 per cent in the year to February, from 4 per cent a month earlier.

Core inflation, which strips out energy and food prices to give a better picture of underlying price pressures, fell more slowly than economists expected from 3.3 per cent in January to 3.1 per cent in February.

Since the disruption of the coronavirus pandemic and Russia’s invasion of Ukraine triggered the biggest price surge for a generation, eurozone inflation has fallen rapidly from its peak of 10.6 per cent in October 2022. This has raised hopes that the ECB could soon start to lower borrowing costs after they raised their benchmark rate to a record 4 per cent last year.

Senior ECB policymakers have played down the likelihood of imminent cuts. Some have signalled they are unlikely to loosen monetary policy before June to give them time to check if wage pressures are moderating enough to allow inflation to reach their 2 per cent target.

The central bank plans to release new forecasts after its meeting next week. Goldman Sachs expects it to cut its forecast for eurozone inflation this year from 2.7 per cent to 2.3 per cent and for next year from 2.1 per cent to 2 per cent.