Inflation in the euro zone weakened for the second month in a row. Consumer prices were 2.6 percent higher in February than a year earlier. The ECB could soon start cutting interest rates.
Inflation in the Eurozone continues to decline. Consumer prices rose by only 2.6 percent in February compared to the same month last year, said the EU statistics office Eurostat. An initial estimate was thus confirmed. The distance from the target of the European Central Bank (ECB), which aims for two percent inflation for the entire euro zone in the medium term, is therefore becoming smaller. In January the inflation rate was 2.8 percent after 2.9 percent in December. The current inflation rate in Germany is 2.5 percent.
Energy prices in Europe only fell by 3.7 percent in February compared to the same month last year. In January the decline was 6.1 percent. Prices for food, alcohol and tobacco, on the other hand, rose by 3.9 percent after an increase of 5.6 percent in January. Non-energy industrial goods rose in price by 1.6 percent after the previous 2.0 percent.
The prices for services, which have recently been the focus of the ECB’s monetary authorities, increased by 4.0 percent after also 4.0 percent in January. Core inflation, which excludes volatile energy and food prices as well as alcohol and tobacco, fell further in February. It fell to 3.1 percent, after 3.3 percent in January.
Interest rate cuts will be more likely
Since the summer of 2022, the ECB has countered the temporarily significant rise in inflation in the euro area and Germany with ten interest rate increases in a row. In autumn 2022 it reached a record high of 10.7 percent. Higher interest rates make loans more expensive, which can slow down demand and counteract high inflation rates. However, more expensive financing is also a burden for companies and private investors. In view of the weakening economy, there are increasing calls to lower interest rates again.
This could happen soon: According to experts, the ECB is increasingly heading towards its first interest rate cut by the middle of the year. After the latest interest rate meeting on March 7th, Central Bank President Christine Lagarde signaled that the monetary authorities would probably lower the key rates in June rather than April. The next ECB meeting is on April 11th in Frankfurt. The subsequent interest rate meeting is also planned for June 6th in Frankfurt.
Does it start in June?
“ECB President Lagarde unmistakably brought June into play at the most recent press conference. By the end of the year, the ECB should cut key interest rates a total of three times,” write the DZ Bank experts in their weekly outlook
The experts at Helaba also expect a first interest rate cut in June: “In our opinion, ECB representatives have made it very clear that they are prepared to reduce interest rates in June as long as there are no surprises in inflation and wage developments,” they say it in today’s daily commentary.
The expectation of imminent interest rate cuts at the ECB and the US Federal Reserve is seen as a key driver of price gains on the stock markets.