Eurozone inflation revised down but oil and food costs expected to weigh

Julian Harris
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INFLATION in the Eurozone was revised down to an annual rate of 2.3 per cent in January, yesterday – surprising economists who had expected it to be held at the earlier estimate of 2.4 per cent.

However, strong pressures from oil and food prices are expected to increase the harmonised index of consumer prices (HICP) by one or two percentage points in February.

The first “flash” estimate of consumer price inflation in February for the Eurozone is released this morning.

“We expect ‘flash’ preliminary HICP to have increased to 2.5 per cent year-on-year in February,” said Fabio Fois of Barclays Capital.

An increase to just 2.4 per cent would take inflation to its highest level since October 2008.

Core inflation – excluding food, energy, alcohol and tobacco – stood at 1.1 per cent across the single currency area for January.

Despite food inflation dropping to 1.5 per cent, from 1.8 per cent in December, it is expected to drive prices upwards in coming months, along with rising oil prices.

“We continue to expect energy and food inflation to remain the largest contributors to the headline inflation rate this year,” Fois said. “In terms of core inflation, we would expect it to keep moving sideways.”

French price increases for January surprised on the downside recently, but yesterday Spanish consumer price inflation for February was estimated at 3.4 per cent – a strong upturn from January’s rate of three per cent.

Across the European Union as a whole, consumer price inflation stayed at 2.7 per cent in January -- one per cent higher than the annualised rate a year earlier.