High inflation in the euro zone eased further at the beginning of the year due to lower energy price increases. Consumer prices rose by 8.5 percent in January compared to the same month last year, according to an initial estimate by the statistics office Eurostat in Luxembourg. This is the lowest inflation rate since May 2022. Analysts had expected an inflation rate of 8.9 percent on average.
In a monthly comparison, the price level fell by 0.4 percent in January. It is still unclear how prices in Germany developed in January. Due to a technical problem, the Federal Statistical Office is not planning to publish it until next week.
With the decline in January, inflation has eased for the third month in a row. “The slower increase in energy prices was decisive for this,” said expert Jens-Oliver Niklasch from the Landesbank Baden-Württemberg. Among other things, he referred to the development of the price of natural gas, which has recently fallen significantly.
In December, the inflation rate in the euro zone was still 9.2 percent after reaching a record high of 10.6 percent in October. According to expert Christoph Weil from Commerzbank, the unexpectedly sharp fall in inflation at the beginning of the year is no reason to sound the all-clear. He referred to the development of core inflation, which is still at a very high level.
Core inflation remained stable at 5.2 percent in January, unchanged from the month before
Core inflation, which excludes volatile energy and food prices, held steady at 5.2 percent in January, unchanged from the month before. From this point of view, the annual rate remains at its highest level since the introduction of the euro. This shows that the strong price increases are not only affecting energy and raw materials.
Economists attach particular importance to core inflation because it indicates how costs are passed on from companies to consumers. This can result in second-round effects in the form of higher wage demands, which can ultimately lead to a price-wage spiral.
Energy prices continue to rise the most, albeit more slowly than in the previous months. On the other hand, the upward trend in food prices increased at the beginning of the year.
The price target of the European Central Bank (ECB) of two percent in the medium term is still clearly exceeded. Before the turn of the year, the central bank had slowed down its high pace of interest rate hikes to an interest rate step of 0.50 percentage points. At the interest rate meeting of the ECB on Thursday, another rate hike of 0.50 points is firmly expected on the financial markets in order to get the high inflation under control.