Eurozone inflation eases, driven primarily by a slowdown in the services sector.

The Eurozone experienced a decline in headline inflation in February, primarily due to a reduction in services inflation.

For most of the year, the headline inflation rate is expected to remain slightly above 2%, while services inflation is projected to continue its downward trend.

Inflation in the Eurozone eased from 2.5% in January to 2.4% in February, slightly above the anticipated 2.3% consensus forecast. However, inflation in categories such as food, alcohol, and tobacco rose unexpectedly from 2.3% to 2.7%.

Core inflation also edged lower, decreasing from 2.7% to 2.6%, though the drop was less pronounced than the expected 2.5%.

A key highlight for ECB policymakers was the decline in services inflation from 3.9% to 3.7%—a 10-month low—which aligned with expectations.

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Looking ahead, Capital Economics forecasts that headline inflation will hover near current levels over the next few quarters, influenced by a modest uptick in energy inflation and food inflation remaining above 2%.

Nonetheless, they view February’s drop in services inflation as the start of a broader trend that will contribute to a significant decline in core inflation this year.

According to Capital Economics, this could prompt the European Central Bank (ECB) to implement more interest rate cuts than currently anticipated.