Eurozone Inflation Slows to 2.4% in February Amid Interest Rate Speculation

Inflation in the eurozone eased slightly in February, according to preliminary data from Eurostat, the European Union’s statistics agency.

The annual inflation rate for the 20 countries using the euro fell to 2.4%, down from 2.5% in January. While this decline signals progress in the European Central Bank’s (ECB) efforts to curb inflation, it was still marginally higher than the 2.3% forecast by economists surveyed by Reuters.

Core inflation, which excludes volatile items such as energy, food, alcohol, and tobacco, also saw a slight decrease. It dropped to 2.6% in February from 2.7% in January, continuing a downward trend that economists expect to persist throughout the year. Additionally, services inflation—a key component that has remained stubbornly high—eased from 3.9% in January to 3.7%, its lowest level since April 2024.

One of the notable factors contributing to the inflation slowdown was the sharp decline in energy price increases, which rose just 0.2% in February compared to 1.9% in January. The moderation in inflation, particularly in the services sector, was viewed as an encouraging sign by analysts.

“February’s decline in headline inflation was encouraging because it was partly due to lower services inflation,” said Jack Allen-Reynolds, deputy chief eurozone economist at Capital Economics.

He added that he expects core inflation to decline further this year.

The latest inflation data comes just days before the ECB’s next policy meeting, where the central bank is widely expected to announce another interest rate cut. If confirmed, it would mark the ECB’s sixth rate reduction since it began easing monetary policy in June 2024. The central bank has been lowering borrowing costs to support economic growth while keeping inflation on track to meet its 2% target.

However, economists remain divided on how much further the ECB will go with rate cuts. Some policymakers have expressed concerns about potential inflation risks, while others believe that the latest figures support continued easing.

“For the European Central Bank, the big question is how low it will go,” said Bert Colijn, chief Netherlands economist at ING.

He noted that while the latest inflation figures indicate that price pressures are easing, uncertainty remains regarding the global economic outlook, particularly in light of geopolitical risks and potential trade tensions with the US.

Despite progress on inflation, the eurozone economy has shown signs of stagnation in recent months. Growth concerns have been exacerbated by geopolitical uncertainties, including the potential for US tariffs on European exports and political instability in key eurozone economies such as France and Germany.

Recent surveys of purchasing managers by S&P Global suggested that the eurozone economy barely grew in February. Investors are now closely watching the ECB’s next moves, particularly any signals from President Christine Lagarde on the future pace of rate cuts.

While inflation has fallen significantly from its peak of 10.6% in October 2022, some analysts warn that price pressures may not fully disappear. Services inflation, for instance, remains elevated at 3.7%, and energy prices could fluctuate due to global market conditions.

As the ECB prepares for its next decision, financial markets will be analyzing its statements for clues about how aggressively the bank will continue its rate-cutting cycle. The euro reacted positively to the inflation data, strengthening 0.8% to $1.046, as investors anticipated further monetary easing.

CNBC, the Financial Times and the Hill contributed to this report.