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Inflation charges throughout most economies in Europe continued their descent final month. Consumer costs within the 20 nations that use the euro as their forex rose at an annual price of two.6 p.c in February, down from 2.8 p.c in January, the statistical workplace of the European Commission reported on Friday.
Why It Matters: Interest charges received’t go down till inflation does.
The sooner inflation charges drop nearer to the European Central Bank’s goal of two p.c, the earlier the financial institution could also be inclined to decrease rates of interest, which stand at 4 p.c. Christine Lagarde, the financial institution’s president, has mentioned she expects inflation will proceed to sluggish given how a lot power costs have declined from the nosebleed ranges they reached in 2022. The easing of provide chain blockages has additionally dampened inflation pressures.
Still, policymakers on the financial institution stay cautious about when to ease the struggle in opposition to inflation. At a gathering of the European Parliament this week, Ms. Lagarde famous that calls for for larger wages have been sturdy, a drive that may result in larger costs. “Wage development is predicted to turn into an more and more essential driver of inflation dynamics within the coming quarters,” she mentioned.
The financial institution additionally retains an in depth eye on core inflation, which strips out unstable meals and power costs. That annual determine dropped to three.1 from 3.3 p.c, however it’s nonetheless considerably above the headline quantity. Consumer costs for some items and companies are nonetheless rising.
Central bankers are scheduled to fulfill subsequent week, however most analysts don’t anticipate rates of interest to drop till the center of the yr.
The Numbers: Country-by-country scorecards.
Europe’s two largest economies, Germany and France, each reported drops in client costs. Germany’s annual price fell to 2.7 p.c in February from 3.1 p.c the earlier month. France registered a decline to three.1 p.c, its lowest degree in two and a half years, from 3.4 p.c. In Spain, the annual price dropped to 2.9 p.c from 3.5 p.c in January.
Italy and Latvia had the bottom inflation charges, under 1 p.c. Austria, Croatia and Estonia have been on the high finish, with charges above 4 p.c.
Bottom Line: It’s all about power costs.
“This continues to be primarily an energy-based story,” mentioned Carsten Brzeski, an economist on the Dutch financial institution ING, referring to the decline in costs from final yr. “What we’re seeing when it comes to year-over-year inflation is dropping costs in oil, gasoline and electrical energy.”
