Eurozone Inflation Accelerates Unexpectedly
Eurozone inflation unexpectedly rose to 1.9% in February, just shy of the ECB's 2% target, complicating plans for rate cuts. The jump is being driven by services inflation and renewed pressure from Middle East tensions, with Brent crude surging past $80/barrel. Markets are now pricing in potential delays to monetary easing as the conflict's full impact on energy prices has yet to hit consumers.
The February data marks a reversal from January's 16-month low of 1.7% inflation, with the uptick catching economists by surprise. Core inflation, which strips out volatile energy and food prices, also accelerated from a four-year low, rising to 2.4% from 2.2% in January. The primary upward pressure came from the services sector, where inflation hit 3.4%, up from 3.2% the month prior. Prices for non-energy industrial goods also rose more quickly (0.7% vs 0.4% in January), while food, alcohol, and tobacco inflation held steady at 2.6%. While overall energy prices continued to fall year-on-year, the rate of decline slowed significantly to -3.2% in February from -4.0% in January. This shift reflects the recent surge in oil prices linked to geopolitical tensions. The inflation picture varied across the bloc's major economies. The annual rate accelerated in Spain (to 2.5%), Italy (to 1.6%), and France (to 1.1%), but it eased slightly in Germany to 2.0%. Despite the inflation jump, the European Central Bank is widely expected to hold interest rates steady at its next meeting on March 19. In its last statement on February 5, the ECB's Governing Council maintained a "data-dependent and meeting-by-meeting approach," refusing to pre-commit to a future rate path. Analysts at Commerzbank project that if the current energy price shock is short-lived, Eurozone inflation could climb to around 2.4% in the second quarter. However, a prolonged conflict that pushes Brent crude toward $100 a barrel could see inflation nearing 3% for the remainder of the year.
