(Bloomberg) -- German inflation slowed in February, feeding expectations that the European Central Bank will start lowering interest rates around mid-year.
Consumer prices rose 2.7% from a year ago — down from 3.1% in January, the statistics office said. That's right in line with economist expectations.
Data earlier Thursday showed inflation also moderated in France and in Spain, though the outcome in the latter was a touch higher than estimated.
Overall, the results support the ECB's assumption that the growth in consumer prices will continue to fade toward the 2% goal in the coming months. Many officials say a first reduction in borrowing costs from 4% now is possible at June's meeting.
Speculation about a speedier move has cooled recently as policymakers voice alarm over elevated wage pressures that could disrupt inflation's retreat, should firms pass the higher costs on to consumers. How the situation pans out is hard to predict, which is why a majority at the ECB wants to see evidence that pay gains are abating.
German state-level data earlier in the day suggested core inflation, which strips out volatile components like energy and food, may have remained steady in February. The national inflation release doesn't contain a reading of underlying dynamics.
What Bloomberg Economics Says...
“We see the downward trend continuing in the coming months and inflation falling below 2% in the course of 2H24. That's good news for the ECB, but it comes with a catch — sticky core inflation may raise eyebrows among hawkish German policymakers and keep them concerned about cutting interest rates too early.”
—Martin Ademmer, economist. Click here for full REACT
Bundesbank President Joachim Nagel is among those who've cautioned against loosening policy too soon, saying the price outlook isn't clear enough and that a detailed picture may only emerge in the course of the second quarter.
His Slovenian counterpart, Bostjan Vasle, said Wednesday that barring major surprises, rates will indeed be lowered, though he cautioned that the timing hinges on inflation, and that excessive wage gains could delay the process.
Data for the whole euro area due Friday are expected to show the positive trend in prices continued across the whole currency bloc, with inflation easing to 2.5% from 2.8%. The core number is expected to remain more elevated, at 2.9%.
--With assistance from Joel Rinneby and Kristian Siedenburg.
(Updates with Bloomberg Economics.)
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