The annual Eurozone inflation rate was confirmed at 1.3 percent in January, down a tick from its final December outturn and equalling its weakest level since December 2016. On the month, the HICP fell a hefty, but essentially seasonal, 0.9 percent, in line with market expectations.
More importantly, two of the three core rates at least moved in the other direction. Excluding energy, food, alcohol and tobacco, yearly inflation was 1.0 percent, also matching its flash estimate and a tick higher than in December. Without just energy and unprocessed food, the rate was 1.2 percent, again in line with its preliminary print, and up from a final 1.1 percent last time. Omitting energy and seasonal food, a 1.2 percent outturn was unchanged from its final year-end mark.
Consequently, the dip in the annual HICP rate was attributable to the more volatile components. Hence, energy declined 0.7 percentage points to 2.2 percent and food, alcohol and tobacco 0.2 percentage points to 1.9 percent. Non-energy industrial goods inflation was 0.1 percentage points firmer at 0.6 percent but services were only flat at 1.2 percent, their fourth consecutive month at this level.
Despite its uptick at the start of the year, underlying inflation is still below where it stood last September. As yesterday's January ECB minutes made plain, the majority of Governing Council members want to see clear signs of a sustainable increase in the core rate before making any significant changes to the current policy stance. To this end, last month was a small step in the right direction but no more than that.
The harmonised index of consumer prices (HICP) is a measure of consumer prices used to calculate inflation on a consistent basis across the European Union. Changes in the index provide an estimate of inflation, as targeted by the European Central Bank (ECB). Eurostat provides statistics for the EU and Eurozone aggregates, individual member states and for the major subsectors. Over the short-term, the central bank focusses on a number of core measures which seek to strip out the most volatile components and so give a much better guide to underlying developments. Amongst these, financial markets normally concentrate upon the narrowest gauge which excludes energy, food, alcohol and tobacco.
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