As expected, the inflation rate in the euro zone continued to decline and fell to its lowest level in almost five years. In January, consumer prices rose by 1.7 percent year-on-year, as the Eurostat statistics office announced on Wednesday in Luxembourg according to an initial estimate. Economists on average had expected this. It is the lowest inflation rate since April 2021.
The European Central Bank (ECB) is aiming for two percent in the medium term. The ECB recently did not affect key interest rates. No change is expected this Thursday either.
Developments in the member states of the Eurozone vary. Inflation had risen in Germany and the Netherlands. Rates fell in France, Italy, Spain and Belgium. In France the inflation rate is particularly low at 0.4 percent. The German inflation rate is 2.1 percent.
Falling energy costs are one of the key reasons for the weaker inflation. Energy prices fell by 4.1 year-on-year in the Eurozone. The prices for food and beverages, however, rose by 2.7 percent.
The core rate of inflation, which excludes particularly volatile components such as energy and food, fell to 2.2 percent – from 2.3 percent previously. Economists did not expect any change here.
Commerzbank expert Vincent Stamer expects a further decline in core inflation. “The reasons for this are both the weaker wage inflation in the euro area and the falling import prices.” Importers are currently also benefiting from a stronger euro.
Compared to the previous month, prices fell by a total of 0.5 percent. Core consumer prices fell 1.1 percent.
“The calls for an ECB interest rate cut are likely to become louder,” commented Thomas Gitzel, chief economist at VP Bank. “Not only is the inflation rate now below the ECB’s target level of 2 percent, but the higher euro prices are another point that could lead to a rethink in the ECB.” Gitzel suspects that ECB President Christine Lagarde is opening the door to an interest rate cut “at least a little.”
