Preliminary data from eurostatThe report, published on Wednesday, said annual consumer price inflation in the euro zone in March 2024 fell to 2.4%, lower than the 2.6% expected and the lowest level in four months. This drop in inflation has raised expectations that the European Central Bank will ease monetary policy in the coming months.
euro area #inflation It is expected to reach 2.4% in March 2024, down from 2.6% in February. Components: Services +4.0%, Food, Alcohol and Tobacco +2.7%, Other Goods +1.1%, Energy -1.8% – Preliminary https://t.co/XV5xxaizCB pic.twitter.com/97f83o23S2
— EU_Eurostat (@EU_Eurostat) April 3, 2024
According to the data, the service industry maintained its highest annual growth rate in March at 4.0%, unchanged from February. The annual rate for food, alcohol and tobacco fell to 2.7% from 3.9% in February. Similarly, the annual rate of non-energy industrial products fell to 1.1% from 1.6% in February. Meanwhile, the annual rate of energy consumption improved to -1.8% from -3.7% in February.
As a result of these developments, markets now expect the European Central Bank to cut rates four times by the end of 2024, with the first expected to occur in June.
In terms of annual inflation rates, the euro area member countries had the highest annual inflation rates: Croatia (4.9%), Austria (4.2%), Estonia (4.1%) and Belgium (3.8%). Conversely, Lithuania (0.3 percent), Finland (0.7 percent), Latvia (1 percent) and Italy (1.3 percent) had the lowest rates.
Furthermore, core inflation, which excludes volatile food and energy items, fell from 3.1% to 2.9%. This decline brought the core inflation rate to its lowest level in two years.
read more: Eurozone inflation rate hits 2.9%, lowest level in two years
Inflation data confirms ECB's June rate cut forecast
The latest inflation figures are in line with expectations that the European Central Bank (ECB) will cut interest rates in June.
Interest rate markets are now fully reflecting expectations for four rate cuts by the ECB by the end of 2024, with the first rate cut expected to take place in June.
ECB President Christine Lagarde's recent public statements underline her expectations for continued declines in inflation within the euro area. However, he also stressed the importance of the ECB's decisions being data-driven and taken meeting by meeting.
market reaction
In trading on Wednesday, the euro fell slightly against the US dollar and remained below the 1.0780 level. The development reflects investors' expectations that the European Central Bank (ECB) will be more likely than the Federal Reserve to cut interest rates in June.
The yield on German federal bonds, the benchmark government bond, remained at 2.4%, consistent with the previous day's closing price.
European stock markets appeared to be trying to recover from the previous day's negative performance. Frankfurt's DAX40 index rose 0.5%, while France's CAC40 index and Spain's IBEX35 index both rose 0.3%. However, the Euro Stoxx 600 index showed a more modest rise, rising only 0.1%.
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