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Investing.com -- The Euro-zone witnessed a decrease in headline inflation in February, largely driven by a drop in services inflation.
The headline rate is expected to stay slightly above 2% for most of this year, with services inflation predicted to continue its downward trajectory.
The inflation rate in the Euro-zone fell from 2.5% in January to 2.4% in February, a slight deviation from the consensus and the forecast of 2.3%. Categories such as food, alcohol, and tobacco saw an unexpected inflation rise from 2.3% to 2.7%.
The core inflation rate also experienced a minor decrease, going from 2.7% to 2.6%, which was a smaller reduction than the anticipated forecast of 2.5%.
However, the most noteworthy observation for ECB policymakers was the fall in services inflation from 3.9% to a 10-month low of 3.7%, in line with forecasts.
Looking ahead, Capital Economics anticipates that the headline inflation will hover near its present level for the upcoming quarters, due to a slight increase in energy inflation and food inflation remaining above 2%.
Yet, they believe the decline in services inflation observed in February marks the beginning of a trend that will significantly lower the core rate this year.
In the view of Capital Economics, this could lead to the European Central Bank (ECB) reducing interest rates more than what is currently expected by most.
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