Markets will receive further confirmation that price indexes are converging towards the European Central Bank's (ECB) target of 2%, as announced by Eurostat at 11am CET on Tuesday, April 30th. We are keeping an eye on inflation statistics in the euro area. This data will also be important in determining whether the ECB will cut interest rates in June.
Inflation is expected to rise 2.3% to 2.4% year-on-year, consistent with March, according to consensus estimates.
“Some market participants who are used to seeing inflation fall month-on-month may be disappointed to see a flat month-on-month figure. “It's good to see the April numbers flat after the positive surprise in the month,” said Michael Field, European market strategist at Morningstar.
The largest contributor to euro area annual inflation in March was services (+1.76 percentage points, pp), followed by food, alcohol and tobacco (+0.53 points), non-energy industrial products (+0.30 points) and energy. Ta. According to Eurostat (-0.16 pp).
“A composite measure of long-term inflation expectations has declined significantly recently,” Goldman Sachs said in its April Eurozone Inflation Monitor. “Indicators of near-term price expectations have largely stabilized in recent months. In particular, expectations for service selling prices have declined for the second consecutive month after a recovery in the fourth quarter that continued into January. Masu.”
Economists at Goldman Sachs expect headline and core inflation in the euro zone to be 2.6% and 2.3% year-on-year, respectively, by December.
Will the ECB cut interest rates in June?
The ECB kept interest rates unchanged at its April meeting and signaled its first rate cut in June. Following the announcement, President Christine Lagarde said: “The slowdown in the growth of labor costs, the impact of the development of a restrained monetary policy, and the rise in inflation are expected to hover around current levels in the coming months, before falling to the target next year. ” The effects of the energy crisis and pandemic are fading. ”
However, ECB officials acknowledged that the recent rise in oil prices was a “very important item”. They are monitoring developments in oil prices, particularly the risk of further price increases in the Middle East.
Goldman Sachs says that “increases in energy prices will have a mechanical impact on consumer energy prices and therefore headline inflation,” with spillovers to core inflation typically much smaller and more uncertain. It adds that. However, the economists “see the risks posed by recent energy price increases to the ongoing deflation process and the outlook for ECB policy as limited unless energy prices rise significantly in the future.”
Morningstars Field also sees little risk to the rate cut schedule. “Unlike the United States, where inflation is just a hair away from the ECB's 2% target level and concerns about a resurgence in inflation are more pronounced, the situation in Europe is quite different. The overwhelming expectation is that the first rate cut will be in June, and it is highly unlikely that the April 30 data will change that.
Core inflation will be key, and it is expected to fall 0.1 percentage point year-on-year to 2.8 percent. The continued decline in core inflation should be “another positive sign,” according to Field, as monetary policy hawks have previously warned that a tightening labor market could lead to a resurgence of services inflation in Europe. We were worried that it could accelerate, but the data should show otherwise.
