Inflation in the Eurozone continues its decline. Prices only rose by 2.4 percent in March compared to the previous year. This seems to clear the way for the ECB to turn interest rates.
Inflation in the Eurozone is falling further and further, paving the way for an early interest rate turnaround. Consumer prices rose by only 2.4 percent in March compared to the same month last year, as the EU statistics office Eurostat announced today, confirming an initial estimate from the beginning of April. In February, inflation was 2.6 percent and in January it was 2.8 percent.
The third decline in the inflation rate is already the third in a row. A year ago, inflation was 6.9 percent, and in autumn 2022 it reached a high of more than ten percent. The main reason for the high inflation rates was Russia’s war against Ukraine and the associated price increases for energy and raw materials.
First interest rate cut in June?
The European Central Bank’s (ECB) goal of an inflation rate of two percent, which it considers ideal for the economy, is now within reach. At its most recent interest rate meeting last week, the central bank once again did not change interest rates and left the key rates at a record level. At the same time, however, it opened the door wide open for a possible first interest rate cut in the near future.
“If its updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission further strengthens the Governing Council’s confidence that inflation is moving sustainably towards the target, an easing of the current monetary policy tightening would be appropriate,” it said Euro watchdog after its interest rate decision.
Yesterday, ECB President Christine Lagarde told CNBC that the process of easing inflation was proceeding as expected. Unless an additional shock occurs, it will be time to weaken restrictive monetary policy in a reasonably short period of time. A number of monetary authorities have already pointed to June as a possible start date for the interest rate turnaround. The next meeting of the ECB is on June 6th in Frankfurt.
Inflation highest in Croatia
Meanwhile, energy was once again cheaper than a year earlier, but the trend of falling prices has been weakening for some time. In March, prices only fell by 1.8 percent compared to the same month last year. In February the decline was 3.7 percent. Food, alcohol and tobacco, on the other hand, rose in price by 2.6 percent, while industrial goods rose by 1.1 percent.
Prices for services continued to rise above average at 4.0 percent. The high proportion of wages in prices and the recent significant collective wage increases are noticeable here. The ECB is keeping a particularly close eye on developments. Core inflation, which excludes volatile energy and food prices as well as alcohol and tobacco, fell further in March. It fell to 2.9 percent, after 3.1 percent in February.
However, when it comes to declining inflation, the differences between the individual countries are considerable: While inflation in Finland was only 0.6 percent in March, Croatia had a rate of 4.9 percent. In Austria the inflation rate was 4.1 percent. In Germany, the largest economy in the euro area, consumer prices rose by 2.3 percent.