Inflation in the euro zone plummeted to 2.4% in March, the lowest level in two years. The decline has increased pressure on the European Central Bank (ECB) to act, potentially making it the first major authority to cut interest rates this year.
Official data from the 20-nation single currency area showed average consumer price inflation fell markedly last month to 2.4% from 2.6%, beating economists' expectations of a more gradual decline to 2.5%. It became clear. This inflation slowdown, combined with a notable slowdown in core inflation from 3.1% in March to 2.9%, means the weakest pace of price growth since July 2021.
The expected decline was foreshadowed by statistics reporting that inflation in Germany, the European Union's largest economy, fell to 2.2% in March, inching closer to the ECB's targeted 2% threshold. In Ireland and Lithuania in particular, average inflation is already below 2% as rising interest rates have slowed borrowing demand and economic growth.
The ECB's next interest rate decision is scheduled for next week, and analysts believe the key interest rate will remain at 4% for the seventh consecutive month. However, given persistent disinflation and slowing growth, pressure on central banks to begin easing monetary policy by June is likely to increase.
Daniele Antonucci, chief investment officer at Quintet Private Bank, said lower inflation and slower growth necessitated lower interest rates and encouraged policymakers to adopt a gradual approach to lowering rates. suggested.
The slump in euro zone inflation in March was mainly caused by further softening in energy prices, with inflation falling by 1.8% annually compared to a year earlier. Additionally, food price inflation slowed to 2.7% from 3.9% last month.
Croatia recorded the highest headline inflation rate in March at 4.9%, while Lithuania (0.3%) and Finland (0.7%) recorded the lowest inflation rates in the single currency area.
JPMorgan Asset Management analyst Natasha May warns against premature celebrations, highlighting continued inflation in the services sector, largely due to strong wage growth and weak labor productivity. did. Theresa May highlighted that the ECB has signaled an imminent interest rate cut in June, conditional on subdued wage growth and evidence of services inflation.
Traders expect major central banks, including those in the United States, Britain and the euro zone, to begin cutting interest rates in June, continuing a global trend that would signal progress in curbing inflation pressures. This follows a period of rate hikes triggered by post-pandemic energy and food price increases and Russia's invasion of Ukraine.
Inflation rates remain at 2.4% in the euro area, 3.2% in the United States, and 3.4% in the United Kingdom, and discussions about interest rate adjustment and strategies to control inflation have dominated monetary policy deliberations across developed countries.