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Disinflation in Eurozone Continues: Sticky Service Price Inflation Will Keep the ECB on Hold for now

Eurozone inflation was reported at 2.8% year-over-year, aligning with consensus predictions and following a previous rate of 2.9%. Core inflation, which excludes volatile items such as food and energy, declined less than expected, reaching 3.3%. Breaking down the components, there was a 5.7% increase in food, alcohol, and tobacco, and a 4.0% rise in services, while energy prices fell by 6.3% year-over-year.

This decrease in the Euro Area Consumer Price Index (CPI) comes after individual country data releases. Germany's harmonized CPI dropped to 3.1% in January from 3.8% in December. France's harmonized CPI decreased to 3.4% from 4.1%, and Italy saw its harmonized CPI increase to 0.9% from 0.5%.

Our Take: The ongoing disinflation is primarily driven by falling energy prices. However, the persistent inflation in food and service prices is likely to prevent the European Central Bank from reducing rates too soon. While it's premature to completely dismiss a rate cut in March, the current data flow indicates a very low likelihood of such an action.


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