Inflation in Europe decreased to an annual rate of 2.4% in February, down from 2.5% in January, signaling a potential interest rate cut by the European Central Bank. The lower inflation rate was attributed to a decline in energy prices and France recording a rate of only 0.9%, according to Eurostat.
This development aligns with the ECB's efforts to bring inflation back to its target of 2% while focusing on bolstering modest economic growth. The upcoming rate-setting council meeting is anticipated to result in a quarter-point reduction in the benchmark rate to 2.5%, aiming to facilitate borrowing for investments in housing and business expansion.
The economic concerns stem from the eurozone's stagnant performance in the final quarter of 2024, influenced by consumer caution due to inflation, apprehensions over potential US tariffs, and political uncertainties in France and Germany. Recent surveys indicate minimal growth in the eurozone economy for February.
During the upcoming meeting, ECB President Christine Lagarde may provide insights into the extent of rate cuts. Despite the decline in inflation from its peak in 2022, certain price indicators, particularly in services, remain elevated. The bank's previous stance on the benchmark rate restricting growth might be revised, hinting at a more conservative approach to future rate cuts.
An ECB official highlighted that recent economic shifts could limit the extent of rate reductions, suggesting a change in the inflation risk outlook. The neutral rate, indicating a balanced economic state, has reportedly increased in recent years, influencing the ECB's monetary policy decisions.
