Catania, Italy – Inflation in the euro zone decelerated to 2.6% in February, as per preliminary data released on Friday. However, both the overall and core inflation rates surpassed expectations set by analysts, who had predicted a 2.5% increase. Core inflation, which excludes volatile components such as energy, food, alcohol, and tobacco, rose to 3.1%, exceeding the anticipated 2.9% figure.
According to the European Union statistics agency, food, alcohol, and tobacco saw the highest inflation rate in February at 4%, followed closely by services at 3.9%. On the other hand, energy prices, which had surged in the previous year due to geopolitical tensions, began to decrease, with the deflation rate shifting from -6.1% to -3.7%.
While the headline inflation rate had been recorded at 2.8% in January, a further decline was expected after price growth slowed down in major European economies like Germany, France, and Spain. Investors are closely observing clues on the potential timing of interest rate adjustments by the European Central Bank, with market expectations pointing towards a rate cut in June.
Despite core inflation remaining above 3%, the headline rate is moving closer to the European Central Bank’s 2% target. Notably, price hikes have notably subsided from their peak of 10.6% in October 2022. The ECB is facing the challenge of addressing economic stagnation within the euro zone, especially after narrowly avoiding a recession last year with stagnant GDP growth in the fourth quarter.
Following the release of the inflation data, European stock gains moderated slightly, shifting from a 0.5% increase earlier in the morning to a 0.2% rise. The euro maintained stability against both the U.S. dollar and the British pound amidst these developments. Investors and policymakers alike will continue to monitor economic indicators and inflation trends in the coming months for further insights and potential policy adjustments.