ECB Stresses Data-Driven Rate Policy

The latest Eurozone inflation data for February 2026 shows a year-over-year increase to 1.9%, up from 1.7% in January. This acceleration was primarily driven by the services sector, which saw inflation rise to 3.4%. Food, alcohol, and tobacco prices also contributed, with a stable inflation rate of 2.6%, while non-energy industrial goods saw a slight increase to 0.7%. Conversely, energy prices continued to fall, though at a slower pace, with a reading of -3.2% compared to -4.0% in the previous month. On the manufacturing front, the HCOB Eurozone Manufacturing PMI signaled a return to growth for the first time since August of the prior year, rising to 50.8 in February from 49.5 in January. This marks the strongest improvement in operating conditions for the sector since June 2022. This manufacturing recovery is being driven by a rise in new orders and has been particularly noted in Germany, the bloc's largest economy. Despite the positive output signals, factories are reporting a significant increase in input costs, the sharpest in over three years, which is leading to higher factory gate charges. In its February 2026 meeting, the ECB's Governing Council decided to hold its key interest rates steady. The deposit facility rate remains at 2.00%, the main refinancing operations rate at 2.15%, and the marginal lending facility rate at 2.40%. The central bank is navigating these conflicting signals—a manufacturing rebound coupled with persistent inflationary pressures—by emphasizing a meeting-by-meeting approach. The ECB has not pre-committed to a specific rate path, making future decisions entirely contingent on incoming economic and financial data.