Euro area – Core inflation begins its descent

Inflation falls due to service prices

According to preliminary data from Eurostat, the inflation rate fell to 2.4% in February (from 2.5% in January), which was slightly above expectations (consensus: 2.3%). Inflation has thus lost some of the increase caused by high energy prices at the turn of the year. The core inflation rate excluding energy, food, alcohol and tobacco (core rate) fell to 2.6%, which was also slightly above expectations.

What is striking is the drop of services inflation (from 3.9% to 3.7%.) This had remained close to the 4% mark for more than a year. Apparently, service providers are finding it increasingly difficult to pass on price increases to consumers during this period of economic weakness. By contrast, food inflation has risen (from 2.3% to 2.7%). Due to the inflationary pressure on food, inflation is likely to settle above the ECB target of 2% overall.

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