Eurozone inflation eased to 2.4% in February however remained above forecasts, complicating the ECB’s rate-cut plans. Month-to-month worth pressures, in the meantime, hit a 10-month excessive.
After 4 consecutive months of rising inflation, eurozone shopper costs edged decrease in February however fell lower than economists had predicted, underscoring persistent worth pressures that might complicate the ECB’s rate-cut plans for 2025.
The eurozone’s annual inflation charge eased to 2.4% in February 2025, down from 2.5% in January, in response to flash estimates from Eurostat. Nevertheless, this was greater than the forecasted 2.3%, highlighting the challenges of returning to the ECB’s 2% goal.
On a month-to-month foundation, worth pressures soared, with shopper costs rising 0.5% from January – the steepest improve since April 2024.
Companies inflation remained the best amongst classes, totalling 3.7% year-on-year, barely down from January’s 3.9%.
Meals, alcohol, and tobacco inflation accelerated from 2.3% to 2.7%, whereas core inflation, which excludes vitality and companies, eased solely barely from 2.7% to 2.6%.
Amongst eurozone nations, Estonia recorded the best annual inflation charge at 5%, adopted by Croatia (4.7%) and Belgium (4.4%). On a month-to-month foundation, Belgium stood out with a 2.4% surge, the steepest in a yr.
ECB outlook: Charge reduce path unsure
The ECB is broadly anticipated to chop charges by 25 foundation factors at its 6 March assembly, with Financial institution of America economist Ruben Segura-Cayuela describing it because the “final straightforward reduce”.
But, past March, divisions amongst ECB policymakers might emerge, making the tempo of additional easing unsure.
BNP Paribas economist Stéphane Colliac famous that companies inflation stays elevated throughout the eurozone, together with in France.
He additionally warned that vitality inflation might briefly tick up within the short-term, however that is unlikely to be sustained.
“From now till the summer time, vitality costs and people for meals and industrial items are prone to put upward stress on inflation, however a fall in companies inflation, even restricted, would permit core Eurozone inflation to fall within the spring and headline inflation to stabilise at across the 2% goal,” Colliac stated.
BNP Paribas expects the ECB to ship three consecutive quarter-point charge cuts, but the financial institution warned that persistent core inflation shut to three% could sluggish the tempo of future cuts.
Market response: Euro and defence shares rally
The euro strengthened 0.6% to 1.0465 towards the greenback by mid-morning Monday, extending session good points after the inflation information.
The one forex additionally discovered assist from a weekend summit in London, the place European leaders agreed on a coordinated plan to spice up defence spending and maintain help to Ukraine.
European bond yields rose as markets digested the mixed impression of persistent inflation and elevated authorities spending expectations. German two-year Schatz yields climbed 5 foundation factors to 2.05%, whereas 10-year Bund yields rose 6 foundation factors to 2.45%.
In fairness markets, the Euro STOXX 50 index gained 0.6%, whereas Germany’s DAX superior 0.8%. Defence shares led the rally, with Rheinmetall surging 17.6%, France’s Dassault Aviation and Thales up 16%, and Italy’s Leonardo rising 15% after European leaders pledged to spice up army spending.
In Germany, stories prompt that the CDU/CSU and SPD, at the moment in coalition negotiations, are contemplating two particular funds value lots of of billions of euros for defence and infrastructure investments. This added additional momentum to defence shares and bond yields.