Eurostat data for March 2024 showed annual consumer price inflation fell to 2.4%, below expectations of 2.6% and the lowest level in four months. Markets expect the ECB to cut rates four times by the end of 2024, with the first expected in June.
advertisementInflation in the euro zone fell more than economists expected last month, further reinforcing expectations that the European Central Bank will ease monetary policy in coming months.
The euro zone's annual consumer price inflation rate fell to 2.4% from 2.6% in March 2024, according to preliminary Eurostat data released on Wednesday. This was the lowest level in four months and was below expectations for stable numbers.
In particular, the highest annual rate in March was for services (4.0%, unchanged from February), followed by food, alcohol/tobacco (2.7%, down from 3.9% in February), and non-energy industrial products (1.1%). %, down from 1.6%). %), Energy (-1.8%, up from -3.7% in February).
Among the euro area member states, Croatia (4.9%), Austria (4.2%), Estonia (4.1%) and Belgium (3.8%) recorded the highest annual inflation rates, followed by Lithuania (0.3%) and Finland (0.7%). %), Latvia (1%) and Italy (1.3%) were the lowest.
Core inflation, which excludes volatile food and energy items, fell to 2.9% from 3.1%, the lowest level in two years.
Market expectations, ECB inflation forecasts, future risks
The latest data on inflation should be in line with expectations that the ECB will cut interest rates in June.
Interest rate markets are currently forecasting four rate cuts by the ECB by the end of 2024, with the first rate cut expected to begin in June.
ECB President Christine Lagarde's recent public statements underlined her expectations for continued declines in inflation in the euro area. However, he stressed the need for the ECB's decisions to continue to rely on data and be decided on a meeting-by-meeting basis.
Ahead of Wednesday's inflation announcement, ECB member Robert Holzmann said he would not oppose a rate cut in June, but stressed the importance of further support measures. He also warned that rate cuts could be inconsistent with the Federal Reserve, making policy easing less effective.
The ECB's latest forecasts show average annual headline inflation of 2.3% in 2024, 2.0% in 2025 and 1.9% in 2026.
However, risks associated with the recent rise in oil prices have increased.
Brent crude oil has risen 15% since the beginning of the year, reaching $89 a barrel in early April. The ECB's economic staff forecast released in March assumed an average oil price of $79 per barrel in 2024.
If oil prices remain at these high levels or rise further in the coming months, they will inevitably affect European inflation and potentially delay the ECB's interest rate cut plans.
Expert comments on the latest inflation data
Kyle Chapman, foreign exchange market analyst at Ballinger Group, says concerns about the wage impact of the second phase are overblown and may not pose a significant hurdle to the disinflationary trajectory. It is becoming increasingly clear.
Chapman believes there is no debate about the continued trend toward the 2% target, and believes there will be “certain dovish opposition within next week's board meeting.”
“At the very least, we need to have a serious discussion about what the production cut cycle will be, and there is a possibility that they may pre-announce their intention to cut production in June,” he added.
market reaction
In trading on Wednesday, the euro fell slightly against the US dollar and remained below the 1.0780 level. This trend reflects investors' expectations that the ECB is more likely to cut interest rates in June compared to the Fed.
German federal bond yields remained at 2.4%, in line with Tuesday's closing level.
advertisementEuropean stock markets tried to rebound from the previous day's negative closing price. In Frankfurt, the DAX40 rose 0.5%, while the CAC40 and IBEX35 rose 0.3%. However, the Euro Stoxx 600 index rose more modestly, rising only 0.1%.
