Inflation in Europe eased to an annual rate of 2.4% in February, official data showed on Monday, bolstering the case for another interest rate cut from the European Central Bank (ECB) this week and further policy easing in the coming months.
Still, it remains uncertain how far the monetary authority would go in reducing borrowing costs for an economy that continues to grapple with sluggish growth.
Last month's figure for the 20 countries that use the euro currency was down from 2.5% in January as energy inflation dwindled and major economy France saw a rate of only 0.9%, the European Union's statistical agency Eurostat reported.
The lower consumer price inflation figure supports the view that the ECB is succeeding in its battle to get inflation back to its target of 2% and can focus on supporting tepid growth.
The bank's rate-setting council is expected to cut its benchmark rate by a quarter point to 2.5% on Thursday. That rate influences borrowing costs throughout the economy, and a cut will make it easier to borrow money to buy a house or expand a factory.
A rate cut had already been pencilled in by analysts but the new figure gives added support for a cut.
Growth worries have come to the fore after the eurozone stagnated in the last three months of 2024, as consumers still smarting from an outbreak of inflation remained cautious in their spending habits. Business worried about possible new tariffs on exports to the U.S. under President Donald Trump.
Political paralysis in France, where no party has a majority in parliament to address an outsized budget deficit, and the transition to a new government in Germany after the Feb. 23 national election have also left businesses uncertain about the future.
Recent surveys of purchasing managers by S&P Global suggested the eurozone economy just barely grew in February.
The big question at Thursday's interest rate meeting is whether ECB President Christine Lagarde will drop clues about how far the bank will go in cutting rates. While inflation is well down from its peak of 10.6% in October, 2022, some indicators of price pressures remain elevated. Costs for services – a broad category ranging from haircuts and hotel rooms to concert tickets and medical care – remained at 3.7%
At its last meeting on Jan. 30, the bank said the benchmark rate was still high enough to restrict growth; dropping that mention on Thursday could be seen as a signal that future cuts will be more limited.
A top ECB official argued in a recent speech that recent changes in the economy may constrain how far the bank can go in cutting rates.
Recent evidence suggests "that the era during which risks to inflation have persistently been to the downside is likely to have come to an end,” said Isabel Schnabel, a member of the six-member executive board that runs the bank day to day at its Frankfurt headquarters.
Schnabel argued that the so-called neutral rate at which the economy is neither held back nor stimulated has risen in recent years.
