News
German Inflation Fails to Slow After France and Italy Undershoot
(Bloomberg) -- German inflation unexpectedly remained unchanged in February, highlighting the challenges for the European Central Bank in deciding how quickly and how far to cut interest rates.
Consumer prices increased 2.8% from a year ago, the statistics office said Friday. Economists in a Bloomberg survey had expected a slight slowdown to 2.7%.
The report follows earlier figures showing French inflation retreated to its lowest level in four years, while price gains in Italy surprisingly held steady. Spain’s reading — which came Thursday — stayed at 2.9%, with a gauge of underling pressures plunging.
The euro rose after Germany’s release, hitting a session high $1.0412 as traders trimmed bets on ECB monetary easing. They now see 85 basis points of additional rate cuts in 2025, compared with about 87 basis points before the data.
That caused German bond yields to trim their decline, with two-year debt down one basis point at 2.03%.
Despite Germany’s elevated inflation number, it joined France and Italy in registering moderations in service-price gains. That’s been a particular focus for the ECB, which remains confident of meeting its 2% goal for headline price growth this year.
What Bloomberg Economics Says...
“German headline inflation surprised to the upside. But there’s also good news for ECB policymakers — the sticky headline reading was likely due to a surge in food prices. This suggests core inflation in Europe’s largest economy has cooled somewhat after a significant rise at the beginning of the year. We expect the disinflation process to resume in the coming months.”
Next week’s likely reduction in the deposit rate to 2.5% will bring total easing since June to 150 basis points, though policymakers are increasingly diverging on next steps.
Some officials like Executive Board member Isabel Schnabel worry about services prices, higher energy costs and US trade tariffs, while others like Italian central-bank chief Fabio Panetta fret more about sluggish economic expansion and undershooting the inflation target.
A clearer picture of price pressures will emerge on Monday, when analysts expect the 20-nation currency bloc to report a moderation to 2.3%.
In France, inflation sank to 0.9% from January’s 1.8%. Economists had estimated 1.1%. Italian prices rose 1.7% — in contrast to a median prediction of 1.8%.
A poll published earlier Friday by the ECB showed consumers’ inflation expectations over the next 12 months abating to 2.6% from 2.8%. They held steady at 2.4% for three years ahead.
But analysts surveyed by Bloomberg before March’s rate decision see a greater chance of inflation overshooting the ECB’s goal. Such concerns may be fanned by separate numbers from Germany showing import prices jumped by the most in two years in January.
--With assistance from James Regan, Alessandra Migliaccio, Greg Ritchie, Joel Rinneby, Harumi Ichikura and Kristian Siedenburg.
(Adds Bloomberg Economics.)