Eurozone: inflation rate falls to lowest level in almost five years

The inflation rate in the Eurozone has continued to fall as expected, reaching its lowest level in almost five years. In January, consumer prices rose by 1.7 percent year-over-year, according to an initial estimate released by the statistical office Eurostat in Luxembourg on Wednesday. Economists had anticipated this on average. This is the lowest inflation rate since April 2021.

The European Central Bank (ECB) is targeting two percent in the medium term. The ECB recently left key interest rates untouched, and no change is expected this Thursday.

The trend varies across Eurozone member states. Inflation rose in Germany and the Netherlands. In France, Italy, Spain and Belgium, the rates decreased. France's inflation rate is particularly low at 0.4 percent, whereas Germany's stands at 2.1 percent.

A key factor in the weaker inflation is the falling cost of energy. Energy prices in the Eurozone fell by 4.1 percent year-over-year. In contrast, prices for food, alcohol and tobacco rose by 2.7 percent.

The core inflation rate, which excludes volatile components such as energy and food, fell to 2.2 percent from a previous 2.3 percent. Economists had not anticipated this change.

Commerzbank expert Vincent Stamer expects a further decline in core inflation. “The reasons for this are both weaker wage inflation in the Eurozone and the fall in import prices.” Importers are also currently benefiting from a stronger euro.

Compared to the previous month, overall prices fell by 0.5 percent. Core consumer prices decreased by 1.1 percent.

“Calls for an ECB interest rate cut are likely to grow louder,” commented Thomas Gitzel, chief economist at VP Bank. “The inflation rate is now below the ECB's target of 2 percent. Furthermore, the higher euro exchange rates add another factor that could lead to a rethink within the ECB.” Gitzel suspects that ECB president Christine Lagarde will open the door for an interest rate cut “at least a crack”.

This article was translated to English using an AI tool.

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