Although O inflation in her countries Eurozone remains well above the ECB’s target, the worst is probably over. A marked reduction in price pressure is expected in 2023. Inflation fell to 8.5% yoy in January from 9.2% in December, well below the 9% expected by Reuters analysts, according to the current preliminary estimate. The weakening of the core index is associated with a further decline in energy inflation, which fell to 17.2% year-on-year in January from 25.5% in December. Energy prices and, to a lesser extent, food prices were the main contributors to inflation in the eurozone last year, fueled by high commodity prices following the Russian invasion of Ukraine, but wholesale gas prices are now well down from late summer highs.

In part, this probably reflects the continuing impact of factor prices on consumers. Due to technical problems, Germany has not yet provided inflation data for January. Germany’s inflation index was higher than the Eurozone average in December (9.6% yoy vs. 9.2%) and is likely to pick up in January as windfalls from government interventions disappear. As such, the European Statistical Office may need to revise upward the 8.5% annual nominal figure from today’s preliminary estimate for the Eurozone when it releases its final data on 23 February. The eurozone’s current preliminary estimate is equivalent to the weighted average of inflation in its member states, excluding Germany. However, the Statistical Office included “its own estimate for Germany” in its calculations. Inflation varies considerably between eurozone member states, ranging from 5.8% year-on-year in Spain to 21.6% in Latvia.

Some countries are much more exposed than others to import price fluctuations in natural gas markets. There are also differences in how quickly higher prices are passed on to consumers, as well as differences in the timing of government intervention to mitigate inflationary impacts. In five of the 18 countries for which the European Statistical Office recently released data, annual inflation rose in January compared to December.

* Mr. Salomon Fiedler is an Economist at Berenberg Bank.