Eurozone inflation eased in the last two months of 2022 but the economic indicator remains well above the 2% ECB mandate.
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Inflation in the eurozone fell for the third consecutive month in January on the back of a significant drop in energy costs.
The headline inflation in the eurozone came in at 8.5% in January, according to preliminary data released on Wednesday. In December, the rate was recorded at 9.2%.
Energy remained the biggest cost driver in January, but it eased again from previous levels. Energy charges fell to an estimated 17.2% in January, down from 25.5% in December. However, food prices rose slightly from 13.8% in December to 14.1% in January.
The 20-country region saw big price increases in 2022, after Russia’s invasion of Ukraine sent energy and food costs up across the bloc. However, the latest data provides further evidence that inflation has begun to abate.
Core inflation, which excludes energy and food costs, was 5.2% in December – in line with the previous month.
“The key point is that core inflation is unchanged at a record 5.2%, so the ECB will remain very hawkish,” Jack Allen Reynolds, chief European economist at Capital Economics, said via email.
The performance of the main index in Europe over the past 12 months.
“The apparent drop in the core inflation rate in the eurozone in January, from 9.2% in December to 8.5%, was quite a surprise. But we wouldn’t be shocked if it was significantly upward revised when final data for the eurozone are released on the 23rd.Research and development February,” citing the delay in receiving official data from Germany.
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The economic indicator is being closely watched ahead of the new interest rate decision, which is scheduled for release on Thursday European Central Bank. Rising inflation has led the European Central Bank to raise interest rates four times in 2022, and Market expectations point to at least two more increases in the next meetings.
“The upshot is that a larger-than-expected decline in headline inflation will not prevent the ECB from raising interest rates by 50 basis points tomorrow,” said Allen Reynolds.
In a note to clients last week, Morgan Stanley said that “a 50 basis point hike in February looks like a done deal, with the board arguing to focus on the size of the rate hike in March and beyond.”
Market participants will be looking for clues about the central bank’s next steps. The ECB’s main interest rate is currently 2%, but market expectations point to an increase to 3.5% by the end of the first six months of the year, according to Reuters.
“Investors will be looking to see if Christine Lagarde doubles down on previous signals for another half-percent increase in March and what words she uses to describe any further tightening in the future,” Tom Hopkins, portfolio manager at BRI Wealth Management, said Wednesday by email. .
Unemployment in the Eurozone appeared to be steady at 6.6% in December. This is in line with the previous two monthly readings and also reduces fears of a major recession in the Eurozone.
Data released on Tuesday showed better-than-expected growth activity in the eurozone at the end of 2022 – despite economic contractions in Germany and Italy, Eurozone growth of 0.1%. In the fourth quarter of last year.
