The Eurozone Consumer Price Index (CPI) data came out weak this morning, although we believe this is not a surprise following the advance German and French misses last week. CPI entered deflation again and was -0.2% y/y in February, down from the 0.3% y/y seen in January. Core CPI also fell to 0.7% y/y, from 1% y/y.
We were somewhat concerned to note that there were broad-based declines in inflation rates across all categories. Clearly the dip in energy was expected, but there were also dips in non-energy industrial goods and services. Some of this is related to index rebasing (which, in our view, also makes analysts’ expectations more shaky). However given there is still likely some element of downside surprise in these numbers, we believe this topic will be focused upon by the European Central Bank (ECB) in their upcoming meeting on March 10th, particularly given that the non-energy industrial goods and services indices are more domestic economy focused.
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