Eurozone Inflation Cooled Down to 8.6% in January, CPI Declines for 3rd Month
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Eurozone Inflation Cooled Down to 8.6% in January, CPI Declines for 3rd Month

While annual inflation has dropped in the eurozone, consumer prices still grew at a slightly faster pace than initially estimated.
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Inflation across Europe has continued its downward movement, dropping for the third consecutive month. The consumer price index in the eurozone cooled down to 8.6% in January compared to December’s 9.2%. Similarly, the European Union’s annual inflation decreased from 10.4% in December to 10% in January.

While annual inflation has dropped in the eurozone, consumer prices still grew slightly faster than initially estimated.

Baltic Countries Record Highest Inflation Rate Across Eurozone

On Thursday, the European Union’s statistics agency Eurostat revealed inflation data for January 2023. The eurozone annual inflation rate was 8.6% in January 2023, down from 9.2% in December. Likewise, the European Union’s annual inflation was 10%, down from 10.4% in December.

Most eurozone countries saw a decrease in inflation compared to December, but nine countries saw a rise in the consumer price index. Moreover, 12 countries remained in the double digits territory in January. 

Hungary is experiencing the highest inflation levels at around 26.2% among these. Latvia, Czechia, Estonia, and Lithuania come next, where inflation remains high at 21.4%, 19.1%, 18.6%, and 18.5%, respectively. The report noted that rising food and energy prices contributed the most to the annual inflation in January.  

“In January, the highest contribution to the annual euro area inflation rate came from food, alcohol & tobacco (+2.94 percentage points, pp), followed by energy (+2.17 pp), services (+1.80 pp) and non-energy industrial goods (+1.73 pp).”

Despite the drop in annual inflation, consumer prices grew slightly faster than initially estimated. In the eurozone, inflation was estimated to increase to 8.5% in January. The core inflation, which does not consider more volatile categories of food and energy, came at 5.3%, compared to the preliminary estimate of 5.2%. 

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The European Central Bank (ECB) Raises Rates as Inflation Soars

To tame rising inflation, the European Central Bank (ECB) started to raise interest rates after 11 years of loose monetary policy. In July last year, the central bank raised the three key ECB interest rates by 50 basis points. 

The ECB continued to raise rates in September and by a further 75 basis points in October to 1.5%, the highest rate in over a decade. Earlier this month, the central bank raised interest rates by 0.5% while explicitly signaling at least one more hike of the same magnitude next month. 

Last week, European Central Bank chief Christine Lagarde reiterated that the central bank aims to raise its interest rates by a half percentage point in March. “In view of the underlying inflation pressures we intend to raise interest rates by another 50 basis points at our next meeting in March,” Lagarde said

The record-high inflation in the eurozone resulted from a spike in energy prices that started to increase at the end of 2021. The first surge in energy prices came as countries left or reduced Covid restrictions and the demand for energy started recovering

A second spike came during 2021 amid surfacing supply-side issues. This development was aggravated in early 2022 by the Russian invasion of Ukraine as the conflict interrupted Russia’s oil or natural gas supplies to the rest of Europe.

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Do you think inflation in the eurozone will continue to decline in February? Let us know in the comments below.