Euro zone inflation dips in January as soft patch begins
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A customer shops in a supermarket in Nice, France, March 1, 2023. REUTERS/Eric Gaillard
FRANKFURT, Feb 4 (Reuters) - Euro zone inflation dipped last month, data showed on Wednesday, entering a soft patch that most economists expect will last for at least a year and keep the European Central Bank on hold.
Price growth in the 21 countries that share the euro slipped to its lowest level since September 2024, dropping to 1.7% in January, weighed down by a fall in energy prices. The reading was in line with economists' forecasts.
But a key measure of underlying inflation that strips out volatile items such as energy, food, alcohol and tobacco unexpected edged down to 2.2% from 2.3 in December, as prices in the services sector continued to ease.
Taken together, the readings were unlikely to trigger any immediate move by the ECB, which is expected to keep interest rates steady on Thursday and through the remainder of the year.
"With underlying inflation still a little too high for comfort and expectations that the euro zone economy will regain momentum later in the year, we believe the most likely outcome is that the ECB will keep rates unchanged for the foreseeable future," Diego Iscaro, head of European economics at S&P Global Market Intelligence, said.
The euro zone's central bank expects inflation to slightly undershoot its 2% target this year and next before heading back to it in 2028.
Inflation has been hovering around 2% for at least a year after a wave of price hikes fuelled by the economy's recovery from the COVID-19 pandemic and Russia's invasion of Ukraine in 2022, which pushed up fuel costs.
Economists are split over whether the ECB's next move will be a cut or a hike, with some policymakers recently saying both moves are equally likely.
A recent appreciation of the euro against the dollar, partly a response to U.S. President Donald Trump's unpredictable policymaking and worries about the Federal Reserve's independence, has fuelled some market talk about a rate cut.
"Inflation under target and euro strength are something that may cause the ECB to think twice about staying on hold," Melissa Davies, an economist at Redburn Atlantic, said.
(Reporting by Francesco Canepa; Editing by Hugh Lawson)
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