The inflation rate in the Eurozone was stable at 0.8% in February. Falling energy prices were outweighed by stronger than expected core inflation, up to 1.0% y/y. For next week Governing Council meeting, more detailed information on the role played by the VAT rate hike in France in this rebound, together with the outcome of the new projections for inflation will be key.

  • In February, the inflation rate in the Eurozone was 0.8% according to the Flash estimate by Eurostat. It was stable compared with January, whereas the consensus of expectations was for a small decline. (Note that January inflation figure was revised to 0.8% in the latest estimate, up from 0.7% in the flash estimate released a month ago).

  • As expected, energy prices tended to push the inflation rate lower, falling by 2.2% y/y against 1.2% y/y in January. This evolution was however outweighed by a stronger than expected resilience of core inflation, up to 1.0% y/y in February after 0.8% in the previous month and a trough at 0.7% in December 2013.

  • Details by countries suggest a significant increase in the –yet unreleased- French inflation rate in February. Indeed, inflation was slightly down in Germany, Italy and Spain (see table), and stable in the Eurozone. In Spain, the EU harmonized inflation rate was nil in February, and even negative according to the national (CPI) index.

  • An increase in the French inflation rate would not be such a surprise as inflation had failed to rebound last month, despite a VAT rate hike that could have boosted inflation by around 0.2-0.3 pp if passed on to retail prices.

  • At first glance, today’s release could be viewed as a figure likely to downplay expectations for an ECB action at next week Governing Council meeting. However we think this might not be the case and that the Council could still announce new actions to counter an alarmingly low level of inflation. In this respect, more detailed information on the driving forces of today’s rebound in core inflation (to what extend could it be due to tax hikes in France?) together with the outcome of the new ECB staff projections for inflation, extended to 2016 for the first time this month, will be key.

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