The news
Inflation rates in most European economies continued to fall last month. Consumer prices in the 20 countries that use the euro as their currency rose at an annual rate of 2.6 percent in February, compared with 2.8 percent in January, the Commission’s statistical office reported on Friday. European.
Why it matters: Interest rates won’t go down until inflation goes down.
The sooner inflation rates move closer to the 2% target set by the European Central Bank, the sooner the bank may be inclined to cut interest rates, which stand at 4%. Christine Lagarde, the bank’s president, said she expects inflation to continue to slow given energy prices falling from 2022 levels. Supply chain has also eased inflationary pressures.
The bank’s policymakers, however, remain cautious about when they should ease the fight against inflation. At a meeting of the European Parliament this week, Lagarde noted that demands for higher wages were strong, a force that can lead to higher prices. “Wage growth is expected to become an increasingly important driver of inflation dynamics in the coming quarters,” she said.
The bank also closely monitors underlying inflation, which does not take into account the volatility of food and energy prices. This annual figure fell to 3.1 from 3.3 percent, but it remains significantly higher than the overall figure. Consumer prices for certain goods and services continue to rise.
Central bankers are due to meet next week, but most analysts don’t expect an interest rate cut until mid-year.
The figures: country-by-country dashboards.
Europe’s two largest economies, Germany and France, both reported falling consumer prices. Germany’s annual rate fell to 2.7 percent in February from 3.1 percent the previous month. France recorded a decline to 3.1 percent, its lowest level in two and a half years, from 3.4 percent. In Spain, the annual rate fell to 2.9 percent from 3.5 percent in January.
Italy and Latvia recorded the lowest inflation rates, below 1 percent. Austria, Croatia and Estonia are at the high end of the scale, with rates above 4 percent.
Conclusion: it all depends on energy prices.
“This is still mainly an energy-based story,” said Carsten Brzeski, an economist at Dutch bank ING, referring to the drop in prices compared to last year. “What we are seeing in terms of year-over-year inflation is a decline in oil, gas and electricity prices.”