Euro zone inflation falls more than expected in January, but core maintains pressure

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Annual inflation in the 20-nation currency bloc fell to 8.5% last month from 9.2% in December. Euro zone inflation eased for the third consecutive month in January, but relief may be limited as the rise in the core price index has held steady and concerns have already been raised about the reliability of the figures. Annual inflation in the 20-nation currency bloc fell to 8.5% last month, from 9.2% in December, according to data from the European Union’s statistics agency on Wednesday (1). The number was well below the 9% expectation in a Reuters poll. Price growth has fallen rapidly since hitting a record 10.6% in October, but the European Central Bank has already pledged further rate hikes, fearing that without higher borrowing costs inflation could stay above its 2020 target. %. The ECB meets on Thursday and is expected to raise rates by 0.5 percentage points to 2.5%, and the bigger question is how much more tightening it will signal. Falling inflation is unlikely to dispel conservative policymakers’ concerns that rapid price growth is taking root, a concern reinforced by core inflation on Wednesday. Excluding food and fuel prices, inflation rose from 6.9% to 7%, while an even tighter measure closely watched by the ECB stood at 5.2%, beating forecasts of 5.1%. Core inflation was boosted by a jump in processed food and industrial goods prices, but services inflation eased somewhat. Another issue is the reliability of the data. Unlike other months, data from Germany, the bloc’s biggest economy, is missing, and Eurostat has been forced to use a model-based estimate. January’s numbers are also prone to unusual volatility due to price changes earlier in the year, economists say.

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