(Bloomberg) -- French inflation retreated to its lowest level in four years, while prices in Italy unexpectedly held steady — backing continued interest-rate cuts by the European Central Bank.
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Consumer prices in France rose 0.9% from a year ago in February after a 1.8% increase in January, data Friday showed. Analysts had estimated an advance of 1.1%. In Italy, inflation stayed at 1.7%, defying expectations for a slight uptick.
Both registered slowdowns in service-price gains — a particular focus for the ECB, which is widely expected to lower borrowing costs again next week.
European bonds rallied after the figures from France, where yields fell three basis points across the curve. Money markets boosted wagers on ECB rate cuts, now favoring four more quarter-point reductions this year for the first time in almost three weeks.
Inflation is uneven across the region: In contrast to France, Spanish prices jumped 2.9% this month. But the ECB remains confident it will achieve its 2% goal this year — particularly as the bloc’s economy struggles.
A clearer picture of price pressures will emerge later Friday, when Germany publishes figures, and on Monday, when analysts expect the 20-nation currency bloc to report a moderation to 2.3%.
That should allow the ECB to cut its deposit rate to 2.5% from 2.75% next week, bringing total easing since June to 150 basis points. What happens beyond that is less clear as some officials worry about services inflation, higher energy prices and US trade tariffs, while others fret more about sluggish economic growth and the risk of undershooting the target.
Analysts surveyed by Bloomberg before March’s rate decision see a greater chance of overshooting. Such concerns may be fanned by separate numbers from Germany showing import prices jumped by the most in two years in January.
A poll released later Friday by the ECB, however, showed consumers’ inflation expectations over the next 12 months abating to 2.6% from 2.8%. They held steady at 2.4% for three years ahead.
Regional numbers from Germany also point to a slight easing of price pressures nationally this month, according to Bloomberg Economics’s Martin Ademmer. While that’s in line with the consensus among analysts, the 2.7% reading that’s foreseen would still be elevated.