Euro area flash inflation: A timid relief in February

Euro area headline flash inflation registered at 2.4% Y/Y in February, down from 2.5% in January, slightly exceeding market expectations. Core inflation decreased for the first time in six months , falling to 2.6% from 2.7% , again slightly above consensus expectations. Services inflation experienced a slight decline to 3.7% from 3.9%, but it continues to exhibit signs of stickiness, inconsistent with the ECB's 2% target for headline inflation . Inflation for non-energy industrial goods remained broadly unchanged at +0.6% (+0.1 pp), while energy prices dropped to 0.2% from 1.9%, influenced by base effects, declining oil prices for the first time in five months, and a significant decrease in energy prices in France. Currently, inflation is below 2% in six-euro area countries, including France (at 0.9%, the lowest rate in the euro area) and Italy. However, it remains close to or above 3% in eleven countries, including Germany, Spain, Belgium, the Netherlands, and Austria , which presents a clear challenge for the ECB . Germany : harmonized inflation remained stable at 2.8% Y/Y in February , slightly exceeding consensus expectations. This increase is likely attributed to rising food prices, which surged to 2.4% year-on-year from 0.8%. However, there is some relief in the national German CPI, where core inflation decreased to 2.6% from 2.9%, driven by a decline in service prices, which fell to 3.8% from 4.0%, marking the lowest level since September 2024. France : The French HICP dropped significantly in February, falling to 0.9% from 1.8%, below consensus expectations of 1.1%. This decline was primarily due to a 15% reduction in regulated electricity prices. Service prices also decreased, falling to 2.1% from 2.4%, the lowest rate since January 2022. W e anticipate that French inflation will remain low, around 1%, at least until August, before rising in September due to energy base effects. Italy : Harmonized inflation in Italy held steady at 1.8% in February, slightly below consensus expectations. National core inflation, which excludes energy and unprocessed food, remained stable at 1.8%, according to Istat. Services inflation was down to 2.4% from 2.6%. Spain : In February, the Spanish HICP remained stable at 2.9%, aligning with consensus expectations. According to the INE, electricity prices increased, contrasting with their decline in January. Core inflation may have decreased to 2.1% in February from 2.4%. We maintain our view of a terminal rate of 2% by June, which implies three additional 25bp cuts by the ECB, as we continue to foresee progress on the inflation front (see ECB preview: A cut in March – less clear thereafter ).