The news
Inflation rates in most economies in Europe continued their decline last month. Consumer prices in the 20 countries that use the euro as their currency rose at an annual rate of 2.6 percent in February, up from 2.8 percent in January, the European Commission’s statistics office said on Friday.
Why it matters: Interest rates won’t go down until inflation goes down.
The faster inflation rates fall closer to the European Central Bank’s 2% target, the faster the bank can move to lower interest rates, which stand at 4%. Christine Lagarde, the bank’s president, said she expected inflation to continue to moderate given how much energy prices have fallen from nosebleed levels reached in 2022. The easing of supply chain bottlenecks also eased inflationary pressures.
But policymakers at the bank remain cautious about when to ease the fight against inflation. At a meeting of the European Parliament this week, Ms Lagarde noted that demands for higher wages were strong, a force that can lead to higher prices. “Wage growth is expected to become an increasingly important driver of inflation dynamics in the coming quarters,” he said.
The bank also closely monitors core inflation, which strips out volatile food and energy prices. That annual number fell to 3.1 from 3.3 percent, but is still significantly above the headline. Consumer prices for some goods and services continue to rise.
Central bankers are scheduled to meet next week, but most analysts don’t expect a rate cut until mid-year.
The numbers: Scorecards by country.
Europe’s two largest economies, Germany and France, reported a drop in consumer prices. Germany’s annual interest rate fell to 2.7% in February from 3.1% the previous month. France fell to 3.1%, its lowest level in two and a half years, from 3.4%. In Spain, the annual interest rate fell to 2.9% from 3.5% in January.
Italy and Latvia had the lowest inflation rates, below 1%. Austria, Croatia and Estonia were at the top, with rates above 4%.
Bottom line: It’s all about energy prices.
“This is still a mostly energy-based story,” said Carsten Brzeski, an economist at Dutch bank ING, referring to the drop in prices since last year. “What we’re seeing relative to year-over-year inflation is falling prices in oil, gas and electricity.”
