Eurozone HICP Preview: Forecasts from six major banks, inflation rate to fall

The inflation rate excluding the often highly volatile energy, food, alcohol and tobacco prices is likely to have fallen further from 3.4% to 3.2%. We expect headline inflation rate to fall from 2.9 % to 2.6 %. 

We expect the headline Eurozone index to come in at 2.81% YoY (2.9% in December) and core at 3.27% (3.4%). We continue to see inflation easing further and settling around the target in the medium term, with headline averaging 2.1% YoY in 2024 and 2.3% YoY in 2025.

Eurozone HICP inflation is expected to have stabilised at 2.9% in January. Core HICP inflation, in contrast, is expected to have declined in January, as the upward impact of past rises in energy prices is petering out. On top of that underlying inflationary pressures are easing due to the economic weakness that started in 22Q4 and has continued throughout 2023.

The Euro Area January flash HICP is likely to print unchanged at 2.9% YoY, with core 0.3pp lower at 3.1% YoY. There is more uncertainty than usual in these forecasts, given the annual weighting changes.

Headline Euro Area CPI YoY (January flash) – Citi Forecast 2.5%; Prior 2.9%; Core YoY CPI, prior 3.4%. The January print is hard to predict (given seasonals, regulated price changes, the unwind of energy interventions, new weights), This sets up for a potentially oversized reaction this week.

We look for EZ HICP inflation to edge down to 2.8% in January, reversing a touch of December's jump. Core inflation likely fell to 3.2% YoY. New HICP weights should add some upside pressure on the print, as the weight of the energy component should come down quite notably – thus removing some disinflationary pressure on headline inflation. The end of German energy subsidies, higher electricity network fees, and an increase in restaurant VAT also add upside risk. That said, we expect the slowdown in core momentum to continue.