For what it’s worth — a mention, at least — inflation in Europe was a little warmer than expected last month.
That’s according to a flash estimate which would’ve garnered more attention Thursday were this week’s calendar not so crowded with top-tier US data and policy decisions from the Fed and BoE.
Thursday’s release showed headline CPI across the eurozone ran at a 2.8% pace in January, slower than December’s rate but ahead of consensus nevertheless.
Core price growth was 3.3%. That was likewise slower than December, but also warmer than expected.
The figures came on the heels of GDP data which showed the bloc narrowly averted a recession in Q4, when the economy spent a fifth quarter mired in stagnation.
The uptick in inflation is supposed to be “temporary.” Generally speaking, the battle is considered won, although policymakers won’t say that aloud for a bevy of obvious reasons. Notably, services inflation stuck at 4% in January, still too high, but unchanged from December’s reading, which was the lowest since August of 2022.
After last month’s policy gathering, Christine Lagarde was reluctant to countenance market pricing for a rate cut in April, but reiterated her contention that cuts are likely to commence from summer. I don’t see anything in Thursday’s release to change that narrative.
Inflation in Germany, which is in a recession, slowed last month to 3.1%, from 3.8% in December. Annual price growth likewise cooled in France in January, when headline CPI printed 3.4%, the lowest in two years or, more to the point, the slowest pace of the war era in Europe.
Still, there’s always corporate greed to consider. “While today’s figure still shows easing price pressures, it is far too soon to give the all-clear on inflation,” ING’s Peter Vanden Houte said Thursday. “The ECB hopes that higher wages will be partially absorbed by lower profit margins, but if growth starts to pick up again in the second quarter, companies might have the pricing power to withstand margin compression, so inflation won’t come down much further.”
