(Bloomberg) -- German inflation remained elevated, reminding the European Central Bank that caution is still needed as it continues to lower interest rates.
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Consumer prices rose 2.8% from a year ago in January, matching December’s pace and the median estimate in a Bloomberg survey of economists.
The report follows weaker-than—anticipated figures earlier Friday from France, which prompted traders to ramp up bets on monetary loosening. Investors now price 80 basis points of rate cuts in 2025 — up from about 70 basis points earlier in the session.
President Christine Lagarde expressed confidence this week that disinflation in Europe is “well on track” after the ECB reduced borrowing costs by another quarter-point, to 2.75%. An update on consumer prices for the 20-nation currency bloc as a whole is due Monday. Analysts predict January equaling December’s 2.4% increase, while a Bloomberg Economics nowcast sees a minor uptick to 2.5%.
“We’re confident that inflation will stabilize at its target as projected and monetary policy will cease to be restrictive in the near future,” Finnish central bank Governor Olli Rehn said Friday in a speech.
Indeed, ECB officials may stop describing their monetary-policy stance as “restrictive” at the next decision in March, according to people familiar with the debate.
There are some lingering concerns, however. Services prices are still rising at twice the pace they should, and geopolitical tensions — while contributing to a surprise euro-area stagnation at the end of last year — may yet pose upside inflation risks.
Elsewhere in the region, inflation quickened this month. Spain, Belgium and Ireland all saw accelerations, while price pressures moderated in Portugal. Reports published Friday by the ECB support cautious optimism on prices.
A survey of consumers showed inflation expectations for the next 12 months advanced for a third month in December, remaining unchanged for three years ahead. A separate poll, meanwhile, revealed that professional forecasters revised up their outlook for 2025, while still seeing price gains hovering around 2% through 2027.
“The direction of travel on interest rates has been clear, but without a commitment to any particular rate path,” Irish central-bank chief Gabriel Makhlouf said Friday. “We continue to be vigilant about any derailment of the disinflation process from stubbornly high services inflation.”