The devil’s in the details in Europe’s troubling inflation data

Inflation in Europe fell again in February, though not as sharply as expected, and national data showed accelerating price rises in many of the region’s top economies.

Annual inflation across the 20 countries that use the euro dipped to 8.5%, from 8.6% the previous month, according to an initial estimate released by the European Union’s statistics agency Thursday. Economists polled by Reuters had forecast an 8.2% rise.

Bucking the regional trend, inflation ticked up to 9.3% from 9.2% in Germany, Europe’s largest economy. It also rose in France — to 7.2% from 7% — and in Spain, to 6.1% from 5.9%.

Worryingly, “core” inflation, a closely watched measure that strips out volatile food and energy prices, jumped to 5.6% from 5.3% in the eurozone. That raises the risk that inflation is becoming embedded more deeply across the European economy, even as pressure from high energy prices eases.

It also strengthens the case for the European Central Bank to continue hiking interest rates to tame inflation, which hit a record high of 10.6% in October.

The central bank raised its key rate last month to the highest level since 2008. Policymakers are expected to announce another large increase later this month.

“February’s increase in core inflation will reinforce ECB policymakers’ conviction that significant rate increases are needed,” Jack Allen-Reynolds, deputy chief eurozone economist at Capital Economics, said in a research note.

The biggest driver of headline inflation in Europe was a spike in the cost of food, alcohol and tobacco. Prices climbed 15% last month, compared with a 14.1% rise in January.

Prices for non-industrial goods and services also rose at a faster clip in February.

Energy prices rose 13.7%, compared with 18.9% the previous month.