Eurozone Inflation Slows Sharply as Energy Costs Continue to Ease

Inflation eased swiftly and sharply in the eurozone last month, as skyrocketing energy costs declined amid a massive European conservation effort, but prices for many goods continued to climb and policymakers are expected to raise interest rates later this week.

Consumer prices in countries that use the euro rose at an 8.5 percent annual rate in January, down from 9.2 percent in December and well below double-digit increases in autumn, according to a European Commission estimate released Wednesday. It was the third monthly decline since the inflation rate hit 10.6 percent in October.

The report was the latest signal that inflation in Europe is starting to cool meaningfully, and it buttressed expectations that the European economy might be able to avoid a deep and painful recession forecast by economists just a couple of months ago.

Overall inflation peaked late last year “and will continue to ease throughout 2023,” Oxford Economics, a London think tank, said of the report. Efforts by European governments to shield consumers and businesses from higher energy bills “will aid in disinflation as well,” the group said.

But Wednesday’s data also showed that core inflation, a measure that strips out volatile categories like energy and food, held steady in January, at a 5.2 percent annual pace. Core inflation is closely watched by policymakers because it is a signal that price rises are becoming embedded in the economy. Oxford Economics said the data underscored “the persistence of underlying inflation pressures in the euro area.”

On Thursday, the European Central Bank is expected to raise interest rate by half a point, part of its campaign to curb inflation by cooling the economy.

The International Monetary Fund said earlier this week that while the global economy was likely to slow this year, growth would probably be more resilient than previously anticipated, in large part because a determined fight by central banks against inflation has started to pay off. The I.M.F. also said that the energy crisis in Europe had been less severe than initially feared.

As Russia’s aggression against Ukraine enters its second year, energy prices in Europe remain high, but have come down from the soaring levels of last year as European governments encouraged citizens and businesses to engage in sweeping conservation measures, and scrambled to replace Russian natural gas imports with other sources of energy.

Energy prices rose 17.2 percent in January from a year ago — an eye-popping figure but down sharply from December’s 25.5 percent rise and well below galloping price increases of over 40 percent seen in the fall.

The highest inflation rates overall continued to be seen in Baltic countries closest to the war zone, including Latvia, where annual inflation is over 20 percent, and in Lithuania and Estonia, where inflation is above 18 percent.

In Germany, the eurozone’s biggest economy and the one most impacted by soaring energy costs, inflation has started to fall from double-digits in autumn. The federal statistics office, citing a “technical problem,” said its January inflation data had been delayed and would be published next week.

But in a reversal, France, the second-biggest economy, is starting to see inflation climb after bucking the trend of other eurozone countries after the government spent billions of euros last year providing subsidies to offset energy bills. Those subsidies are now becoming less generous, and inflation in France is expected to start picking up pace even as it cools elsewhere. Inflation rose at an annualized rate of 7 percent in January, up from a 6.7 percent pace in December.

But even as energy bills have eased, the price of food has continued to climb, a sign that the painful cost-of-living crisis that has buffeted millions of Europeans is far from fading. Prices for processed food, tobacco and alcohol rose at an annual pace of nearly 15 percent, the most in over a year.

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