January saw a considerable decline in energy prices, which contributed to the euro zone's inflation declining for a third consecutive month.

According to preliminary figures released on Wednesday, the euro zone's headline inflation rate was 8.5% in January. The rate was recorded at 9.2% in December.

In January, energy remained the key cost-driver but again declined from prior levels. Energy costs decreased from 25.5% in December to an expected 17.2% in January. However, the price of food increased somewhat in January from 14.1% to 14.8% from December.

After Russia's invasion of Ukraine drove up energy and food prices nationwide in 2022, the 20-member area saw significant price hikes. The most recent data, however, offers more proof that inflation is beginning to decline.

Core inflation, which excludes expenditures for food and energy, was 5.2% in December, which was consistent with the previous month.

“The key point is that core inflation was unchanged at a record 5.2% so the ECB will remain very hawkish,”

stated Jack Allen-Reynolds, senior Europe economist at Capital Economics.

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