Eurozone: Core inflation likely fell significantly in January

A number of eurozone countries published January inflation in the past few days. The general picture was that the inflation rates of non-energy industrial goods and parts of services (e.g. related to hotels and restaurants) dropped lower, but that the inflation rate of services related to travel and holidays was more resilient.

Overall, this suggests that the core inflation rate (excluding food, energy, alcohol and tobacco) declined noticeably in January. Nevertheless, headline inflation fell less sharply than expected as household energy price inflation soared in January. For instance, Belgium’s statistical office mentioned that household energy inflation added 3.9 percentage points to the total inflation rate between December and January (Belgium’s headline inflation rate rose to 7.6% from 5.7%), with natural gas prices up by almost 154% yoy in January and electricity prices by almost 71%. Germany’s headline (HICP) inflation rate declined to 5.1% in January, down from 5.7% in December. The consensus expectation was for a stronger decline (to 4.3%), also considering that the upward base-effect from the changes in the VAT rate dropped out of the equation in January 2022.

Detailed inflation data for Germany’s main regions also showed rises in household energy inflation in January and drops in the inflation rate of non-energy industrial goods, such as clothing and shoes and household appliances and furniture. All in all, based on the data from the individual countries, it seems that eurozone inflation (to be published on 2 February) will decline to around 4.6% in January, down from 5.0% in December. The core rate probably fell to around 1.9%, down from 2.6% in December.