Slowing Inflation In Germany, France Boosts Rate-Cut Hopes


Inflation in Germany, France and Spain eased further in February, data showed Thursday, a development likely to be welcomed by the European Central Bank as it weighs when to begin cutting interest rates.

Consumer price growth fell sharply to 2.5 percent in Germany, Europe’s largest economy, according to preliminary data from federal statistics agency Destatis.

The figure was the lowest reading since June 2021, and comes after Germany’s annual inflation eased to 2.9 percent in January.

The February slowdown was driven by lower energy prices and slowing food price inflation, Destatis said.

In the EU’s second-largest economy, France, inflation slowed to 2.9 percent in February after reaching 3.1 percent last month, the INSEE statistics institute said.

The annual fall was due to a slowdown in prices of food, manufactured products and services while energy prices accelerated.

In Spain, annual inflation cooled to 2.8 percent in February as electricity prices fell. It had reached 3.4 percent the previous month.

Thursday’s data will fuel speculation over the ECB’s next move when it holds its monetary policy meeting on March 7.

Markets hope the central bank will soon begin cutting rates that were raised to tame inflation, which soared following Russia’s invasion of Ukraine in 2022.

The ECB has held rates steady so far in 2024, but some investors believe the first cuts could come as early as April in the face of easing consumer prices and a weakening eurozone economy.

ECB president Christine Lagarde has previously signalled the bank could start lowering borrowing rates this summer.

Eurozone inflation figures will be released on Friday. In January, inflation in the 20-nation currency club stood at 2.8 percent.

While still above the ECB’s two-percent target, eurozone inflation has fallen significantly below the peak of 10.6 percent recorded in October 2022 after the war in Ukraine sent energy prices soaring.

The latest German, French and Spanish inflation data “should leave ECB policymakers more confident that disinflation will continue”, said Capital Economics economist Franziska Palmas.

“But with services inflation declining only slowly and the latest available figures for wage growth still strong, officials will want more evidence that underlying inflationary pressures are subsiding before starting to cut rates.”