Euro area inflation softened in January

ECB chief economist Philip Lane. Photo: Bloomberg

Inflation in the euro area slowed in January, to a rate of 2.8pc, returning to a downward trend that is the key to expected interest rate cuts.

The latest figures from Eurostat show that in the month of January prices fell 1.4pc compared to December 2023.

The euro area annual inflation rate was down from 2.9pc in December. In January 2023 the pace of inflation was running at 8.6pc.

While inflation is now narrowing towards the European Central Bank’s target of around 2pc there is a growing sense on financial markets that expectations of radical interest rate cuts this year were over blown.

Bets on financial markets still suggest interest rates will be cut, but that’s increasingly expected to be in the second half of the year and may add up to less than a full percentage point (1pc) reduction from the current 4.5pc ECB rate.