Inflation in the 19 countries that use the euro eased to an annual 2.4% in February from 2.5% in January, the European Union’s statistical agency Eurostat reported
Inflation in Europe dipped to an annual rate of 2.4% in February, bolstering the argument for another interest rate reduction from the European Central Bank (ECB).
However, it remains uncertain how far the central bank will go to decrease borrowing costs for an economy still striving for strong growth. The February figure for the 20 nations using the euro currency fell from January’s 2.5%, as energy inflation lessened and France, a major economy, recorded a rate of just 0.9%, according to data released by Eurostat, the European Union’s statistical agency, on Monday.
This lower consumer price inflation figure suggests that the ECB is winning its fight to bring inflation back to its 2% target, allowing it to concentrate on bolstering sluggish growth. The bank’s rate-setting council is predicted to slash its benchmark rate by a quarter point to 2.5% this Thursday.
This rate impacts borrowing costs across the economy, making it easier to secure loans for house purchases or factory expansions. Analysts had already factored in a rate cut this Thursday, but the new figure provides additional backing for such a move.
Concerns over economic growth have been heightened following the eurozone’s stagnation in the final quarter of 2024, with consumers still reeling from an inflation outbreak and maintaining cautious spending habits. Businesses are also apprehensive about potential new tariffs on exports to the US under President Donald Trump’s administration.
Political deadlock in France, where no party holds a parliamentary majority to tackle an oversized budget deficit, coupled with Germany’s transition to a new government post the February 23 national election, has left businesses uncertain about what lies ahead.
Recent surveys by S&P Global indicate that the eurozone economy barely grew in February. The key question at Thursday’s interest rate meeting is whether bank President Christine Lagarde will hint at how far the bank might go in reducing rates.
Although inflation has significantly dropped from its peak of 10.6% in October 2022, some price pressure indicators remain high. Costs for services – a broad category encompassing everything from haircuts and hotel rooms to concert tickets and medical care – remained at 3.7%.
At its last meeting on Jan. 30, the bank stated that the benchmark rate was still high enough to restrict growth; omitting this statement on Thursday could be interpreted as a sign that future cuts will be more limited. A senior ECB official recently argued in a speech that recent economic changes may limit how much the bank can cut rates.
Recent findings indicate “that the era during which risks to inflation have persistently been to the downside is likely to have come to an end,” stated Isabel Schnabel, a member of the six-person executive board that oversees the bank’s daily operations at its Frankfurt base. Schnabel suggested that the so-called neutral rate, where the economy is neither restrained nor boosted, has seen an increase in recent years.
