Unlock Editor's Digest for free
FT editor Roula Khalaf has chosen her favorite stories in this weekly newsletter.
Eurozone inflation fell to a weaker-than-expected 2.4% in March, boosting expectations that the European Central Bank will cut interest rates by the summer.
Data released Wednesday by EU statistics agency Eurostat showed that annual consumer price growth slowed from 2.6% in the previous month due to smaller increases in food and commodity prices that offset stable service prices. It reflects. A Bloomberg survey of economists had predicted growth of 2.5% in March.
The easing of the region's worst cost-of-living crisis in a generation will be welcomed by the ECB, which meets next week to discuss how quickly to ease monetary policy. Most analysts expect policymakers to wait until June to start cutting rates.
Many rate setters are concerned that rapid wage growth is still pushing up costs in the labor-intensive service sector, where prices rose at a steady 4% annualized pace for the fifth month in a row. are doing.
Diego Iscaro, an economist at S&P Global Market Intelligence, said the decline in headline inflation in March “could increase expectations for a rate cut later this month.” But he predicted that “the persistence of service prices will cause the ECB to wait for further evidence of moderation in wage growth before starting the easing cycle in June.”
Some economists had expected eurozone services inflation to rise in March as the early arrival of Easter was expected to push up prices for package holidays and flights.
Core inflation, which excludes energy and food prices to give a more accurate picture of underlying price pressures, was slightly higher than economists expected in March, compared with 3.1% in February. It decreased by 9%.
Inflation in the euro zone has fallen sharply from a peak of 10.6% in October 2022, after the disruption of the coronavirus pandemic and Russia's invasion of Ukraine triggered the biggest price spike in decades, and the ECB's This is approaching the target of 2%.
But ECB executives said the decision to cut rates would be delayed to give them more time to assess whether wage pressures have eased enough to keep inflation down to their target. They have indicated that they will likely wait until June.
Separate data released by Eurostat on Wednesday showed that the eurozone labor market remained resilient. The unemployment rate in February was 6.5%, unchanged from January's slightly revised upward reading.
One worrying sign for rate setters was that month-on-month single currency area consumer prices rose 0.8% in March, accelerating from 0.6% the previous month. Month-on-month core inflation rose to 1.1%.
Fresh food prices in the euro zone fell for the first time in almost three years, falling by 0.4% in March. Energy prices fell 1.8%, slower than the 3.7% drop in February. Commodity prices rose 1.1%, the slowest pace since 2021.
