Euro zone inflation fell unexpectedly last month, strengthening the case that the European Central Bank needs to start reducing borrowing costs.
Consumer price growth in the 20 countries that share the euro slowed to 2.4% in March on an annual basis, against expectations that it would repeat the previous month’s 2.6% rate, while food prices , energy and industrial products were pressing down.
Core inflation, closely monitored by the ECB to gauge the durability of price pressures, fell to 2.9% from 3.1%, below expectations of 3.0%, according to Eurostat data, the European Inflation Agency, published this Wednesday.
The only potential concern for the ECB will be the fact that services inflation has remained stable at 4.0% for months, suggesting that relatively rapid wage growth is keeping prices in the sector under constant pressure.
Inflation has been on a steady downward path for more than a year, but since last fall it has fallen faster than many had predicted, shifting the debate to when and how quickly the ECB will cut record interest rates.
At its meeting next week, the central bank is expected to acknowledge the improved outlook, but the authorities are unlikely to cut rates immediately, having repeatedly tipped June as the next crucial meeting to set monetary policy.
That’s why investors see almost no chance of a cut on April 11, but have fully priced in a move for June, followed by two or three more by the end of the year.
The ECB has been cautious in initiating easing because it expects inflation to reach its 2% target again only next year, although some private analysts take a more favorable view, forecasting the rate around 2% by autumn.
Source: Terra
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