Eurozone inflation eases slightly in February

05/03/2025 09:52 AST

Eurozone inflation edged down slightly in February to 2.4 percent, reversing a four-month upward trend thanks to a slowdown in energy price increases, official data showed on Monday. Last month's rate was down from 2.5 percent in January, but it came in higher than the 2.3 percent predicted by analysts for financial data firm FactSet.

Inflation had reached 1.7 percent in September, its lowest level in three and a half years, but since October had climbed back above the European Central Bank's two percent target.

The data will support the ECB's thinking that price pressures will ease this year as it prepares to cut interest rates again on Thursday.

Core inflation-which strips out volatile energy, food, alcohol and tobacco prices and is a key indicator for the ECB-also slowed to 2.6 percent in February, down from 2.7 percent in January, in line with experts' expectation.It will be a welcome drop after core inflation remained stable at 2.7 percent since September last year.

The ECB's focus has turned from tackling inflation to boosting the 20-nation single currency area's economy after sluggish growth in the past two years.

The eurozone economy grew by a mere 0.1 percent in the fourth quarter of last year. Inflation has sharply fallen from the record peak of 10.6 percent, reached in October 2022 after Russia's invasion of Ukraine sent energy prices soaring.

But risks remain for Europe's economy after US President Donald Trump threatened the EU with higher tariffs and uncertainty over Ukraine's future.

The outlook for the eurozone's two biggest economies, Germany and France, appears gloomy for 2025, as the single currency area falls further behind the United States and China.

The easing of inflation in February was mainly driven by energy costs, which rose 0.2 percent year-on-year, a significant slowdown from 1.9 percent in January. But food, alcohol and tobacco price rises accelerated to 2.7 percent in February, up from 2.3 percent in January.

Services sector inflation slowed to 3.7 percent last month, lower than the 3.9 percent recorded in January, Eurostat data showed. Analysts said they expected inflation not to change significantly from current figures.

"We think that headline inflation will remain close to its current level for the next few quarters as energy inflation edges up and food inflation stays above two percent," said Jack Allen-Reynolds, deputy chief eurozone economist at Capital Economics.

Consumer price rises in Germany and France greatly differed, according to the data. France's inflation slowed to 0.9 percent in February-the lowest in the eurozone-from 1.8 percent in January. But in Germany it remained stable at 2.8 percent.

Meanwhile, the European Central Bank is expected to cut interest rates again this week in a bid to boost the floundering eurozone economy, even as debate heats up about when to hit pause.

It will mark the central bank's sixth reduction since June last year, with its focus having shifted from tackling inflation to relieving pressure on the 20 nations that use the euro.

With "growth stuttering", a quarter-point cut at Thursday's meeting "is a near certainty", HSBC bank analysts said.

A reduction by a quarter percentage point would bring the bank's benchmark deposit rate to 2.50 percent. The rate reached a record of four percent in late 2023 after the ECB launched an unprecedented hiking cycle to tame energy and food costs that surged after Russia's invasion of Ukraine. But investors will be keeping an eye out for signals from ECB President Christine Lagarde that a pause might be on the horizon, after some officials said it was time to start discussing the matter.

Markets have indicated they expect the ECB to bring the deposit rate steadily down to two percent by the end of the year to support a eurozone economy that has showed increasing signs of weakness.

Some policymakers are starting to ask how the central bank should continue on the path downward.

Isabel Schnabel, an influential member of the ECB's board, told The Financial Times last month that policymakers were getting "closer to the point where we may have to pause or halt our rate cuts". "We can no longer say with confidence that our monetary policy is still restrictive," she said.

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