Eurozone inflation eased to 2.3% in February, with core inflation at 2.6%, its lowest since January 2022. France had the lowest rate (0.9%), Hungary the highest (5.7%). The euro slipped ahead of Wednesday’s Fed meeting.
Price pressures across the eurozone were revised lower in February, reinforcing expectations that inflation is steadily returning towards the European Central Bank’s 2% target.
Headline inflation rose by 2.3% year-over-year last month, down from 2.5% in January and below the previous estimate of 2.4%, according to Eurostat data released on Wednesday.
Core inflation, which excludes energy and food, eased to 2.6% from 2.7% in January, marking its lowest level since January 2022.
Among EU members, France recorded the lowest annual inflation rate at 0.9%, followed by Ireland (1.4%) and Finland (1.5%). Hungary (5.7%), Romania (5.2%), and Estonia (5.1%) registered the highest rates.
On a monthly basis, Belgium saw the steepest inflation increase, rising 2.4%, followed by the Netherlands (1.4%) and Estonia (1.3%). Portugal was the only country to experience a price decline (-0.1%), while consumer prices remained stable in Greece and Croatia.
In February 2025, services contributed the most to euro area inflation (+1.66 percentage points), followed by food, alcohol & tobacco (+0.52 pp), non-energy industrial goods (+0.14 pp), and energy (+0.01 pp).
Investor sentiment on inflation remains cautious
Despite the easing inflation figures, investor expectations on future price trends remain subdued. The latest Bank of America Fund Manager Survey indicated that only a net 7% of European investors expect lower inflation in the eurozone over the next year, the weakest sentiment since April 2022.
Meanwhile, 53% of surveyed European investors believe the new Trump administration will have a negative impact on global growth but a positive effect on inflation.
European markets are also reacting to Germany’s recently announced fiscal stimulus and expanded European defence spending, both of which are seen as potential growth catalysts. A significant 70% of investors polled view German fiscal stimulus as the most likely driver of stronger European economic expansion.
Market reactions
The euro fell 0.4% on Wednesday, dipping below the 1.09 level against the dollar ahead of a closely watched Federal Open Market Committee (FOMC) meeting later in the day.
The US Federal Reserve is expected to maintain its benchmark interest rate in the 4.25%-4.5% range, with Chair Jerome Powell likely to reiterate a cautious approach to rate cuts. The central bank will also unveil updated economic projections, including its inflation outlook and interest rate forecast—widely known as the “dot plot”.
In December, the Fed had already revised its inflation projections upward while reducing the number of expected rate cuts for 2025 from four to two. There is broad speculation that policymakers may further adjust inflation forecasts to account for potential tariff-related price pressures under the Trump administration.
Yields on European sovereign bonds edged lower, with German Bund yields declining three basis points to 2.78%.
Equities in Europe traded higher, with the Euro STOXX 50 rising 0.3%, mirroring the gains of Germany’s DAX. Investors reacted positively to progress on a potential ceasefire in Ukraine.
On Tuesday, US President Donald Trump and Russian President Vladimir Putin reportedly agreed to a 30-day pause in attacks on energy and infrastructure sites in Ukraine and Russia.
Trump also suggested that discussions on a complete ceasefire were under way. Oil prices retreated on Tuesday, with Brent crude remaining steady at $70 per barrel this morning.
Italy’s FTSE Mib and France’s CAC 40 outperformed, gaining 0.9% and 0.6%, respectively, largely driven by bank stock gains.
Shares of Banca Monte dei Paschi di Siena – the world’s oldest bank – surged more than 3% to €7.87, reaching their highest level since August 2022, after Deutsche Bank upgraded the stock from ‘Hold’ to ‘Buy’.
Analysts at Deutsche Bank suggested that investors were overlooking opportunities in the bank’s bid for Mediobanca, whose shares also rose 1.9%.
