Eurozone inflation rises to 2.5% in January

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Eurozone inflation unexpectedly ticked up in January to stay above the European Central Bank’s medium-term 2 per cent target for the third month in a row, but the rise was not expected to alter policymakers’ plan to continue lowering interest rates.

The bloc’s statistical office Eurostat on Monday reported that consumer prices in January were 2.5 per cent higher than a year ago, above analysts’ expectations of a 2.4 per cent rise, and up from 2.4 per cent in December.

However, the months of higher inflation — price rises were 1.7 per cent in September — have largely been driven by a temporary fall in energy prices a year ago which resulted in an artificially low annual comparison.

The ECB broadly expected this development and is widely expected to see through the acceleration from September as inflation over the past few months has still been softer than forecast by the central bank.

The central bank last week lowered interest rates for the fifth time since June by a quarter point to 2.75 per cent, reflecting confidence that inflation will come down to its 2 per cent target over the course of the year. Annual price rises hit a peak of 10.6 per cent in late 2022 following a surge in energy costs.

“The disinflation process is well on track,” ECB president Christine Lagarde stressed last week, strongly hinting that further rate cuts were likely over the coming months.

“We know the direction of travel,” Lagarde stressed after Thursday’s decision, suggesting it was downwards, adding that the speed, timing and magnitude of future rate moves were going to be decided meeting by meeting. 

Services sector inflation was still significantly above the ECB’s target at 3.9 per cent in January, but the central bank is confident it will come down this year as a result of easing wage pressures.

Core inflation, which strips out volatile food and energy prices, stood at 2.7 per cent in January, unchanged from December and above analysts’ expectations of a marginal decline to 2.6 per cent.