An early Easter usually means higher inflation due to the holiday effect, but this is not showing up in today's data. Monthly seasonally adjusted data showed that both goods and services declined in March, which is a very good sign for inflation in the euro area. Although services inflation is too high for comfort, and the European Central Bank has also focused a lot of attention on this recently, today's reading is ECB This will provide peace of mind for doves. Recent surveys have also reported similar findings, providing an indication of the inflation outlook in the coming months.
Labor market remains hot
However, the labor market remains hot, with the unemployment rate announced today at 6.5%, the lowest level since the Eurozone was founded in 1999. Wage growth has begun to decline cautiously but remains high, potentially tightening the labor market. In addition to it. This could result in inflation falling more slowly than the ECB expected. However, with the central bank's own inflation forecast falling to 2% next year and 1.9% in 2026, the labor market is unlikely to slow down rate cuts much. We believe that continued tight labor markets will limit the amount of cuts the ECB ultimately makes. This year, the total is expected to be 0.75%.
At first glance, this appears to open the door for a rate cut in April, but the ECB is unlikely to act this month. Further data on wage growth is due in May and the ECB needs to be confident of its path. In President Lagarde's own words:We'll know a little more in April, and even more in June.” Also, the economy is not in recession and the unemployment rate is at an all-time low.
While today's indicators are certainly encouraging, the ECB is in no hurry to cut interest rates this month. We believe that June will be the time for the ECB to begin cautiously lowering interest rates.
