Euro-Zone January HICP inflation was confirmed at 1.1% y/y, as expected. Prices fell 0.8% m/m on lower energy costs, as well as seasonal price reductions after the Christmas holiday period. Positive base effects from lower energy prices were one of the key reasons behind the deceleration in the headline rate, but core inflation, excluding energy and food also dropped - to 1.6% from 1.8% previously. The ECB has been stressing that its inflation target is symmetrical and that it wants to keep inflation below but close to 2%, which suggests that both headline and core inflation are now below target. Data will add to pressure on the ECB to cut rates next week, even though given the time lag with which monetary policy affects inflation monetary policy needs to be forward looking.

Meanwhile, Euro-Zone January unemployment rose to 8.2% and the December number was revised up to 8.1% from 8.0% reported initially. The number is slightly higher than consensus expectations for a reading of 8.1%, but the rise is no surprise in the light of the sharp slowdown in production experienced across the Euro-Zone. The slump in demand has forced companies to cut back production and staff levels and the unemployment rate is set to rise further in coming months. Developments will weigh on consumption this year and also push up social security spending across the Euro-Zone.



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