Inflation Remains Elevated in Germany, Tempering ECB Optimism
German inflation persisted at elevated levels in January, reminding the European Central Bank (ECB) to exercise caution despite ongoing interest rate cuts.
Consumer prices climbed 2.8% year-over-year, unchanged from December and aligning with market expectations. The data follows weaker-than-forecast figures from France, prompting investors to anticipate further monetary easing.
ECB President Christine Lagarde expressed confidence in disinflationary trends, citing a 25 basis point rate reduction to 2.75%. However, a broader assessment of consumer prices for the eurozone is scheduled for Monday.
Analysts predict a modest uptick in inflation to 2.5%, while some monetary policy officials may end the current "restrictive" stance in March.
Dutch central bank chief Klaas Knot noted the relatively painless disinflationary process but highlighted concerns over rising services prices and geopolitical risks that could pose inflationary pressures.
In the eurozone, inflation accelerated in Spain, Belgium, and Ireland, while moderating in Portugal. ECB surveys indicate cautious optimism, with consumer inflation expectations and professional forecasts remaining within targeted levels.
However, ECB officials remain vigilant about potential deviations from the disinflationary trajectory, particularly due to persistent high services inflation.
Interpreting January inflation data can be challenging due to statistical reweighting and price fluctuations. German states reported significant increases in transportation insurance premiums and discounts on new electricity contracts, clothing, and shoes.
An alternative national inflation gauge fell to 2.3% from 2.6%, underscoring the complexities of interpreting inflation measures.