(Bloomberg) -- Euro-area inflation eased, boosting confidence that it’s approaching the 2% target as the European Central Bank enters the last leg of interest-rate cuts.
Consumer prices rose 2.4% from a year earlier in February, down from 2.5% in January, Eurostat said. That’s just above the 2.3% median estimate in a Bloomberg survey of economists.
While still elevated, services inflation — which policymakers have been paying particular attention to — dipped to 3.7%. That’s the first major retreat from 4% since April 2024.
The euro extended gains after the slightly higher-than-expected headline number, rising as much as 0.6% to $1.0439. German bond yields increased further, with the 10-year rate up four basis points to 2.45%.
What Bloomberg Economics Says...
“After drifting northward in recent months, inflation declined in February. Importantly, the services measure fell even more. We see weak growth and falling inflation prompting a 25 basis-point rate cut in March, with a further 50 bps later in the year. Still, with rates moving into the vicinity of neutral, our base case is for a pause in April and the next move in June.”
—Jamie Rush and David Powell, economists. Click here for full REACT
Monday’s data offer further reassurance to ECB officials who say their price goal will be met sustainably in the months ahead. While focused on that aim, they’re also navigating flimsy economic growth in the 20-nation currency bloc, the threat of US trade tariffs and chaos over Ukraine peace talks.
They’ll take particular comfort from the moderation in the services sector, where they’ve long been predicting some relief as the strong gains in wages sparked by the surging inflation of recent years begin to abate.
National data last week showed diverging trends. Readings in Germany, Italy and Spain held steady either side of the ECB’s target, while France’s sank to 0.9%. But there was widespread evidence of the easing in services.
The ECB has cut rates five times since June and another move is almost certain when it meets this week in Frankfurt. Analysts predict back-to-back steps until the deposit rate — currently 2.75% — reaches 2%. Investors, though, reckon a pause is possible in April.
Views within the Governing Council are diverging. Hawks advocate a more cautious approach, to avoid lowering rates by too much. Others are more concerned that a stuttering economy will drag inflation below 2%.
A major issue is that borrowing costs are nearing neutral levels where they neither restrain nor stimulate economic activity. Investors will be watching this week to see whether the ECB continues describing its stance as “restrictive,” or whether it opts for different language that signals it may take a breather in the months ahead.