Inflation in the 20-nation euro zone eased to 2.6% in February, but both the headline and core figures were higher than expected, according to flash figures released on Friday. Economists had predicted a headline reading of 2.5%, but the actual number came in slightly above at 2.6%. Core inflation, which excludes volatile components like energy, food, alcohol, and tobacco, was 3.1% – surpassing the expected 2.9%.
The European Union statistics agency reported that food, alcohol, and tobacco had the highest inflation rate in February at 4%, followed by services at 3.9%. Energy prices, which had spiked due to Russia’s invasion of Ukraine in the previous year, continued to decrease with the rate of deflation moving from -6.1% to -3.7%.
While the headline inflation rate is moving closer to the European Central Bank’s 2% target, core inflation remains stubbornly above 3%. Policymakers are facing a delicate balance as they assess when to adjust interest rates. Market expectations suggest a possible rate cut in June but some ECB officials emphasize the need to wait for spring wage negotiations to gain a clearer understanding of domestic inflationary pressures.
Despite the mixed bag of data, price rises have significantly cooled from their peak of 10.6% in October 2022. The ECB is also grappling with economic stagnation in the euro zone following flat GDP growth in the fourth quarter of last year.
Following the inflation figures, European stock gains moderated while the euro remained flat against the U.S. dollar and the British pound. Investors continue to monitor the situation closely for insights into the future direction of monetary policy in the euro zone.
Source link
