Home Estate Planning European inflation edges down to 2.8 per cent as ECB rate cut speculation mounts

European inflation edges down to 2.8 per cent as ECB rate cut speculation mounts

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Euro area inflation fell to 2.8 per cent in January, down from 2.9 per cent in December, as markets speculate when the European Central Bank will begin to cut interest rates

The data came after a sharp uptick for the continent in December, when inflation rose from 2.4 per cent from November to 2.9 per cent due to a phasing out of German energy subsidies.

Last week, the ECB voted to keep interest rates at their highest level in 22 years, stating that it would “ensure that its policy rates will be set at sufficiently restrictive levels for as long as necessary”.

It is expected that the central bank will begin cutting rates in the spring, but ECB president Christine Lagarde said rate cuts were not on the table yet at a press conference following the decision.

Today’s data revealed that in January, food, alcohol and tobacco inflation remained the driving force of higher prices on the continent, with prices rising 5.7 per cent over the last year, down from 6.1 per cent in December.

This was followed by services, which saw the rate of price increases unchanged from December at four per cent, non-energy industrial goods at two per cent, and energy at -6.3 per cent.

Core inflation, which excludes volatile food and energy prices, eased for the sixth straight month to 3.3 per cent, its lowest level since March 2022.

Across the continent, annual inflation rates were highest in Estonia (five per cent) and Croatia (4.8 per cent), while Finland (0.7 per cent) and Italy (0.9 per cent) took up the rear.

Michael Field, European market strategist at Morningstar, said the figures were “a welcome downward move”, especially the fall from the “usually stickier” core inflation.

He added: “Record high interest rates in the eurozone have had the desired effect, driving inflation down in 12 of the last 13 months, so today’s fall should come as no real surprise.

“Granted, we are still not at the ECB’s targeted two per cent level of inflation, but with the momentum we have witnessed over the last year, that goal is well within sight.”

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