Inflation undershoot points to rates being held at tomorrow’s Governing Council meeting

Eurozone inflation dropped to 1.7% in January, matching consensus expectations and more importantly, undershooting the European Central Bank’s (ECB) 2% target.

The decline was primarily driven by stronger deflation in energy prices. Core inflation – which strips out volatile food and energy prices – proved stickier however, edging down only marginally from 2.3% to 2.2%.

With underlying price dynamics largely unchanged, the ECB has little reason to deviate from its current wait-and-see approach.

As such, Cebr expects the Governing Council to leave key interest rates unchanged at tomorrow’s meeting.