ECB vice-president Luis de Guindos said that consumer inflation in the eurozone is moving in the right direction, and is gradually returning to the target level, but the Central Bank should wait a little and get new data before it can say with confidence that record high interest rates have done their job.
According to preliminary data, eurozone annual inflation slowed in January, confirming economists' forecasts. Core inflation reached its lowest level since March 2022, but was slightly higher than expected. The consumer price index rose by 2.8% per year after rising by 2.9% per year in December. Meanwhile, on a monthly basis, the consumer price index fell by 0.4%, offsetting the December increase (+0.2%). Eurostat reported that the core consumer price index - energy, food, alcohol & tobacco - rose by 3.3% per year after an increase of 3.4% per year in December. Economists had expected an increase of 3.2% per annum.
Investors currently expect the ECB to cut interest rates by 113 basis points this year, with the first move now expected in either April or June.
"Inflation is decreasing, but there is no need to rush. We need further confirmation that inflation is sustainably returning to our 2% target," de Guindos said, adding that wage pressure remains high and the ECB does not yet have enough data to suggest it is easing, which poses a potential risk of rising prices.
"However, the process of disinflation continues, which may be facilitated by a slowdown in economic growth. The past tightening of monetary policy is also still affecting the economy and will continue to reduce demand for some time. However, uncertainty remains high, and the ECB will need to consider forecasts along with incoming data in the coming months," ECB vice-president said.
The International Monetary Fund (IMF) estimated that the Eurozone economy has expanded by 0.5% in 2023. Further in 2024, the IMF lowered its forecast by 0.3% compared to its previous report in October and now it projects a recovery, with the GDP growth reaching 0.9% in the block, fuelled by stronger household consumption, as slower inflation and real income growth arise.