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Eurozone inflation fell to 1.7 per cent in January, undershooting the European Central Bank’s 2 per cent target, as lower energy costs and a stronger euro kept a lid on consumer price rises.
The annual inflation estimate was in line with economists’ forecast in a Reuters poll and below the 2 per cent figure recorded the previous month.
Core inflation, which excludes volatile food and energy prices, fell 0.1 percentage points to 2.2 per cent, reaching the lowest level since October 2021 at the start of the post-pandemic surge in consumer prices.
The closely watched figure for services inflation — a gauge for domestic price pressures that has remained well above the ECB’s medium-term 2 per cent target for more than three years — was down to 3.2 per cent in January from 3.4 per cent the previous month.
The ECB, which meets for the first time this year on Thursday, is widely expected to hold its benchmark interest rate at 2 per cent for the fifth consecutive meeting.
The central bank has predicted that inflation will average 1.9 per cent this year after hovering at 2.1 per cent in 2025.
The euro was stable against the dollar at $1.182 after the data. Traders in swaps markets continued to price a slim chance of a further ECB rate cut later this year, ascribing a roughly 20 per cent probability to another quarter-point reduction in the benchmark rate by September.
“Calls for a resumption in monetary easing are likely to amplify over the coming months if this trend continues,” said Diego Iscaro, an economist at S&P Global Market Intelligence.
Weak inflation and the stronger euro provided “some ammunition to the doves” in the ECB’s governing council, Iscaro said, but he stressed that the “the most likely outcome” for the “foreseeable future” would be for rates to remain on hold.
