Eurozone inflation ticks higher, unemployment rate steady

Eurozone inflation ticked a little higher in February, while the unemployment rate for January held steady, according to data released by Eurostat on Friday.

Inflation rose to 1.5% from 1.4% in January, according to preliminary figures, in line with expectations. Energy inflation rose to 3.5% from 2.7% in January, while food, alcohol and tobacco inflation came in at 2.4% versus 1.8%.

Core inflation slipped to 1% in February from 1.1% the month before, versus expectations for it to remain unchanged.

Other figures released by Eurostat showed the unemployment rate in the euro area was stable at 7.8% in January and down from 8.6% in January 2018. Economists had pencilled in a rise to 7.9%. This remains the lowest rate recorded in the bloc since October 2008.

In the EU28 group of nations, the unemployment rate nudged down to 6.5% in January from 6.6% in December 2018 and 7.2% in January 2018. This is the lowest rate recorded in the area since the start of the EU monthly unemployment series in January 2000.

Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics, said this was another set of dovish data to set up the European Central Bank's March meeting.

He said the core print will increase speculation of a further dovish tilt by the ECB next week.

"The consensus is building towards both a change in forward guidance - pushing the timing of rate hikes out to the first half of 2020, at least - and the announcement of new TLTROs. We think this is a bridge too far, but the stage is certainly set for a dovish session next week, though this has now become the rule rather than the exception at the ECB.

"In the labour market, the positive headlines suggest that GDP growth remains strong enough to drive a continued improvement, despite easing recently. That said, the pace of decline in joblessness will slow this year as a lagged response to weaker GDP growth, but it won’t stall."

Capital Economics said the decline in core inflation knocks on the head any hopes that the previous increase, from 0.9% in December to 1.1% in January, was the start of an upward trend.

"Accordingly, there is nothing in the data to justify ECB policy-makers’ view that underlying inflation will converge towards its near-2% target. With the economy slowing, we expect core inflation to remain closer to 1%."