January’s
eurozone
data
showed
a
fall
in
inflation
to
2.8%,
from
2.9%
the
month
before,
backing
the
case
for
an
ECB
rate
cut.
But
core
inflation
was
higher
than
expected
at
3.3%.
Here’s
what
to
expect
from
the
release
of
February’s
data.
Flash
inflation
figures
for
the
eurozone
are
due
at
11am,
Friday,
March
1
and
markets
are
expecting
further
falls
in
the
Harmonized
Index
of
Consumer
Prices
(HICP).
Inflation
is
forecast
to
have
rusen
by
2.5%
on
the
year
before,
down
from
2.8%
in
January,
according
to
FactSet
consensus
estimates.
What
does
that
mean
for
the
prospect
of
an
interest
rate
cut
by
the
ECB
in
the
spring?
Ahead
of
the
March
7
monetary
policy
meeting,
members
of
European
Central
Bank
recently
noted
that
the
downside
surprises
to
inflation
in
recent
months
would
likely
imply
a
downward
revision
for
2024
in
the
March
projections.
Euro
area
annual
inflation
fell
to
2.8%
in
January,
down
from
2.9%
in
December,
according
to
Eurostat.
A
year
ago,
the
rate
was
10%.
In
January,
the
highest
contribution
to
the
annual
euro
area
inflation
rate
came
from
services
(+1.73
percentage
points,
pp),
followed
by
food,
alcohol
&
tobacco
(+1.13
pp),
non-energy
industrial
goods
(+0.53
pp)
and
energy
(-0.62
pp).
ECB
Expected
to
Lower
Inflation
Outlook
“We
look
for
the
updated
[ECB]
staff
projections
in
March
to
downgrade
core
inflation
by
-0.1pp
to
2.2%
in
2025,
although
we
see
risks
skewed
towards
a
larger
downgrade
of
-0.2pp
to
2.1%,”
said
Goldman
Sachs
in
a
note.
Recent
ECB
commentary
stressed
a
dependence
on
the
data,
because
seasonality
would
complicate
the
interpretation
of
incoming
inflation
numbers.
Members
said
that
“continuity,
caution
and
patience”
were
still
needed,
since
the
disinflationary
process
remained
fragile
and
letting
up
too
early
could
undo
some
of
the
progress
made
in
the
fight
against
inflation.
Goldman
Sachs
expects
that
the
downgrade
of
the
inflation
projections
to
be
paired
with
a
tweak
of
the
formal
policy
language
in
March,
noting
that
significant
progress
has
been
made
towards
the
inflation
goal.
“We
expect
President
Lagarde
to
note
in
the
press
conference
that
the
projections
look
encouraging,
that
the
Council
remains
data
dependent
but
that
it
needs
more
confidence
that
inflation
will
return
to
2%
in
a
timely
and
sustainable
manner.”
Is
April
too
Early
for
the
First
Rate
Cut?
But
wage
data
are
particularly
sticky.
The
ECB
indicator
of
negotiated
wage
rates
slowed
to
4.5%
in
the
fourth
quarter
of
2023,
but
it
still
shows
persistent
above
target
wage
growth.
“At
4.5%,
negotiated
wage
growth
is
still
significantly
above
the
3-3.5%
range
needed
to
reach
the
ECB’s
2%
inflation
target,”
said
Tomasz
Wieladek,
chief
European
economist
at
T.
Rowe
Price,
who
argues
that
the
ECB
Governing
Council
will
certainly
wait
until
at
least
June
to
initiate
a
round
of
interest
rate
cuts.
By
then
negotiated
wage
data
for
the
first
quarter
of
2024
will
be
available.
“However,
there
is
a
significant
risk
of
a
further
increase
in
negotiated
wage
growth
in
the
first
quarter
of
2024.
Under
this
scenario,
even
a
June
cut
could
become
difficult
to
achieve,”
ended
Wieladek.
Goldman
Sachs
maintained
its
forecast
for
the
first
cut
in
April
on
expectations
of
continued
disinflation.
But
the
economists
added:
“The
timing
of
the
first
cut
remains
data
dependent,
and
we
see
a
low
hurdle
for
the
Governing
Council
to
wait
until
June
if
the
core
inflation
and/or
wage
data
slow
less
than
we
anticipate.”
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