Eurozone inflation dips in January

(Sharecast News) - Eurozone inflation dipped below target in January, according to early estimates, in line with expectations. According to flash readings from Eurostat, the statistical office of the European Union, annual inflation was 1.7% in January, down from 2% in December. A slide in energy prices - down 4.1% - was the biggest downward pressure on the rate.

Services inflation was the largest upwards contributing factor, although it dipped to 3.2% from 3.4% in December, followed by food, alcohol and tobacco, up 2.7%.

Core inflation, which strips out the more volatile elements of energy and food, was 2.2%, compared to 2.3% a month previously. Consensus had been for no change.

Among individual member countries, inflation ticked up to 2.1% in Germany, but fell in the bloc's other major economies. In France the flash rate was 0.4%, in Spain 2.5% and in Italy 1%.

The figures will add support to more dovish arguments at the European Central Bank, which is due to publish its latest decision on interest rates on Thursday.

However, Bert Colijn, chief economist, Netherlands, at ING noted: "Base effects in energy have done a lot of the heavy lifting here.

"At the same time, the continued decline in services inflation does indicate that broader softness in the inflation environment continues.

"Nonetheless, speculation about a further ECB rate cut has intensified in recent weeks amid slowing imported inflation, partly driven by a weaker US dollar."

Most analysts, including ING, expect the central bank to leave rates on hold this week.

The ECB currently expects inflation to come in slightly below target in both 2026 and 2027 before tacking upwards once again to reach 2% in 2028.