Danske Bank reports Euro area headline inflation fell to 1.7% year-on-year in January, below target, with core at 2.2%. Despite this dovish signal, the ECB kept the deposit rate at 2.00%, as expected. Lagarde stressed positives like low unemployment and downplayed the stronger Euro and inflation undershoot, while Danske Bank’s baseline assumes no ECB rate changes over the forecast horizon.

Inflation slip fails to move ECB

"In the euro area, inflation declined as expected to 1.7% y/y in January from 2.0% y/y while core inflation was slightly weaker than expected at 2.2% y/y (cons: 2.3% y/y)."

"Yet, a weaker-than-expected services inflation print of 0.15% m/m s.a. means that the January report provided a dovish signal for the ECB."

"Despite inflation falling below target the ECB decided to leave its key policy rates unchanged with the deposit facility rate at 2.00%, as widely expected by markets and consensus."

"Lagarde accentuated the positive factors of the economy such as low unemployment while downplaying the role of the inflation undershooting and strengthened euro."

"Risks to inflation are on the upside in the US and balanced in the euro area."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)