Euro Area: Inflation accelerates in February from the prior month
Latest reading: Harmonized consumer prices were up 1.9% on a year-on-year basis in February, following a 1.7% rise in the previous month and overshooting market expectations.
Relative to the prior month’s data, there were higher price pressures for energy prices (-3.1% in annual terms vs -4.0% in January), services (+3.4% vs +3.2% in January) and non-energy industrial goods (+0.6% vs +0.4% in January). In contrast, price pressures reduced for food, alcohol and tobacco in February (+2.6% vs +2.7% in January).
Meanwhile, core consumer prices were up 2.4% on a year-on-year basis in February, following a 2.2% increase in the prior month.
Lastly, harmonized consumer prices increased 0.66% in February on a month-on-month basis, following a 0.56% decline in the prior month.
Panelist insight: Commenting on the outlook, analysts at Goldman Sachs stated:
“For inflation, our estimates indicate that the 4-quarter effects of a 10% increase in the average of oil and gas prices range from 0.15% to 0.3% for headline prices […]. Importantly, the key lesson from the recent inflation episode is that the passthrough of higher energy to consumer prices is non-linear. Our previous work, for instance, found that passthrough was nearly twice as high in 2022 and 2023 than in normal times.”
Dr. Ralph Solveen, economist at Commerzbank, added:
“The war in Iran has caused energy prices to rise sharply, leading many to fear another surge in inflation similar to that seen in 2021 and 2022, when the inflation rate in the euro area exceeded 10% at times. While there are indeed some parallels between then and now, we believe the differences outweigh the similarities. The inflation rate is unlikely to climb nearly as high as it did back then.”