Inflation
in
the
Eurozone
fell
to
2.8%
in
January,
down
from
2.9%
in
December,
according
to
Eurostat’s
flash
estimate,
adding
further
pressure
on
the
European
Central
Bank
to
cut
interest
rates.
The
fall
in
inflation
matched
economist’s
expectations.
Core
inflation,
which
shows
prices
without
energy
and
food
costs,
also
fell
10
basis
points
to
3.3%
year
on
year,
but
missed
expectations,
causing
an
increase
in
Eurozone
government
bond
yields.
Germany
10-year
Bund
yields
–
the
benchmark
for
the
Eurozone
–
rose
to
2.2%
at
time
of
writing.
In
January,
the
greatest
contributors
to
Eurozone
inflation
were
food,
alcohol
and
tobacco
(+5.7%
year
on
year),
followed
by
services
(+4%),
non-energy
industrial
goods
(+2%)
and
energy
(-6.3%),
according
to
Eurostat.
Core
Inflation
Moving
in
the
Right
Direction
“European
flash
inflation
fell
in
January
by
0.1%
to
2.8%,
a
welcome
downward
move
after
the
spike
we
saw
in
December”,
said
Michael
Field,
European
market
strategist
at
Morningstar.
“Core
inflation,
albeit
higher
at
3.3%
is
also
moving
in
the
right
direction,
mirroring
the
0.1%
fall.
That
core
inflation,
usually
stickier,
is
still
falling,
is
indeed
a
positive
sign.”
Field
added:
“Today’s
fall
should
come
as
no
real
surprise
though,
as
record
high
interest
rates
in
the
Eurozone
have
had
the
desired
effect,
driving
inflation
down
in
12
of
the
last
13
months.
Granted,
we
are
still
not
at
the
ECB’s
targeted
2%
level
of
inflation,
but
with
the
momentum
we
have
witnessed
over
the
last
year,
that
goal
is
well
within
sight.”
Shipping
Turmoil
in
the
Red
Sea?
Don’t
Panic
“Inflation
has
peaked
in
Europe
and
is
now
falling
rapidly,
with
headline
inflation
already
below
3%
in
the
Eurozone
and
core
inflation
slowing
to
around
3.5%
year-over-year,”
said
Nicola
Mai,
economist,
sovereign
credit
analyst
at
Pimco.
“As
for
potential
shocks
in
2024,
we
do
not
expect
the
current
shipping
turmoil
in
the
Red
Sea
to
have
a
major
impact
on
inflation
in
Europe,
as
it
stands.
Its
scale
is
a
fraction
of
the
pandemic-related
disruption,
and
shipping
itself
is
only
a
small
component
of
the
cost
structure
of
a
company,”
added
Mai.
“Global
goods
demand
is
not
as
buoyant
as
it
was
during
the
pandemic,
and
the
supply
of
new
container
ships
looks
set
to
be
ample
this
year.
Importantly,
there
are
other
supply
routes
available
to
companies,
including
alternative
sea
routes
and
air
freight.”
That
said,
Mai
warned
that
“Covid-19
taught
us
to
be
wary
of
ripple
effects
on
the
supply
chain.”
Is
the
First
ECB
Interest
Rate
Cut
Closer?
With
inflation
falling,
the
pressure
for
interest
rate
cuts
is
increasing.
The
ECB
kept
interest
rate
on
hold
in
the
January
meeting,
and
did
not
hint
when
it
might
start
cutting
rates.
However,
fears
of
the
economy
overheating
are
easing.
“Data
this
morning
showed
that
the
unemployment
rate
within
the
European
area
was
broadly
steady
at
6.4%,
a
level
it
has
broadly
stayed
at
for
the
last
18
months,”
said
Field.
“Central
bankers
had
originally
feared
that
falling
inflation
might
mean
a
danger
of
the
economy
overheating,
but
a
steady
unemployment
rate
is
just
another
signal
to
the
ECB
that
interest
rates
have
room
to
fall
in
the
coming
months.
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