FRANKFURT — Eurozone inflation eased to 8.5 percent in January from 9.2 percent in December adding to evidence price pressures have peaked, preliminary Eurostat data showed on the eve of the European Central Bank’s next interest rate decision.
It means headline inflation has decelerated for the third straight month after peaking at 10.6 percent in October and has dropped faster than generally expected. A Reuters survey of analysts ahead of the release pointed to a decline to 9.0 percent.
While certainly welcome news to ECB policymakers battling record inflation levels, the data will be read with a pinch of salt. Technical troubles at Germany’s statistics office mean the German component, which makes up a whopping 28 percent of the region, is based on model estimates only.
“This situation is a creating a lot of uncertainty,” JP Morgan economist Raphael Brun-Aguerre said ahead of the release.
Adding to complications is that core inflation, a key gauge for underlying inflation trends, continued to rise. Core inflation excluding energy and processed food accelerated to 7.0 percent from 6.9 percent. The narrower reading, excluding energy, food, alcohol & tobacco, remained steady at December’s 5.2 percent.
ECB policymakers, due to announce their latest interest rate decision on Thursday, have gone out of their way to stress the importance of underlying price pressures in the current, high inflation environment.
The data therefore is unlikely to change the central bank’s policy course for now.
“Today’s release won’t change the big picture,” Pictet Wealth Management economist Frederik Ducrozet said ahead of the release. “Core inflation is too high, and sticky.”
He added: “The ECB looks set to hike rates steadily into restrictive territory, like it or not.”