Underlying Metrics Indicate Steady Disinflation Progress In Jan

The ECB's underlying inflation metrics for January are likely to be interpreted by policymakers as showing further progress toward the 2% target as they consider when to make the first rate cut.

• While core and headline PCCI (persistent/common component) inflation rose a touch in January, they each remained below 2% for the third consecutive month. Core PCCI was 1.85% Y/Y (vs 1.79% prior) while the headline reading was 1.93% Y/Y (vs 1.88% prior).
• The other underlying metrics (supercore, 10/30% trimmed mean and weighted median) also continued to moderate, with supercore (at 3.7% Y/Y) printing below 4% for the first time since May 2022.
• While certainly still of importance to the ECB, we would note that in a recent speech, ECB Chief Economist Lane caveated the reliability of the signals sent by underlying inflation measures, due to "the relative price shocks that have been triggered by the scale and breadth of the energy shock and the pandemic- and war-related shocks".
• Elsewhere, even though services inflation was sticky at 4% Y/Y in January (for the third month running), MNI's calculations indicate a softening of services momentum. Measured as a 3m/3m saar using ECB data, services momentum moderated to 2.25% (vs 2.54% prior).
• However, the ECB will still want to see moderations in NSA services inflation before progressing with its easing cycle, as it assesses the passthrough of wage pressures into end prices through this quarter.