Nowcasting Europe: inflation plateau points to ECB rate cut

On March 6, the European Central Bank is widely expected to cut interest rates for the sixth time this cycle. CEIC's proprietary nowcast suggests that policy makers might feel comfortable making this move because inflation has stopped accelerating. (We'll find out for sure when price data is released on March 3.)

Price growth in the euro area is projected to have plateaued in February at a 2.5% year-on-year pace, according to our weekly nowcast. That would match the January figure.

Headline inflation had been re-accelerating since September, when price growth bottomed out at 1.7% on that basis. Core inflation, which excludes volatile items like food and energy, has seen less variation. It has stayed at 2.7% year-on-year since September 2024.

Policymakers in Frankfurt appear to be more concerned about the weak economy. We've charted the purchasing managers index (PMI) for manufacturing in the currency union, highlighting the 50 mark that separates contraction from expansion. Respondents have indicated activity is contracting for two and a half years; that's significantly worse than the equivalent for services PMI and the composite PMI for all sectors. In February, the most recent release, manufacturing PMI ticked up slightly to 47.3 from 46.6; i.e. still contracting, but at a slower rate.

Our final chart tracks all three of the ECB's key interest rates. They are all expected to be cut by 25 basis points, with the deposit rate reaching 2.5%.