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The deceleration in services—historically sticky and wage-sensitive—will be particularly relevant for the ECB’s rate path. With core inflation now clearly trending lower, the likelihood of a mid-year rate cut remains intact, especially as energy continues to act as a drag on headline prices.
Labor Market Conditions Improve
The euro area unemployment rate declined to 6.1% in February from 6.2% in January, beating expectations and reinforcing underlying economic resilience. The number of unemployed dropped by 70,000 to 10.58 million. Youth unemployment ticked slightly higher to 14.2%, but broader employment trends remained firm.
The EU-wide jobless rate also declined to 5.7%. Notable country-level improvements included Italy (5.9%) and Greece (8.6%), while Germany held steady at 3.5%. The labor market’s strength, even as inflation slows, may give the ECB more confidence that disinflation is not materially damaging growth.
Regional Inflation Divergence Persists
At the member state level, divergence continues. Inflation in Spain dropped to 2.2% from 2.9%, while Italy saw a pickup to 2.1% from 1.7%. Germany, the eurozone’s largest economy, printed at 2.3%, down slightly from 2.6%, offering reassurance on regional price trends. France, however, remains an outlier at just 0.9%, highlighting asymmetric pressures across the bloc.
Market Forecast: Bullish EUR Short-Term
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