Eurozone inflation eases, bolstering ECB’s June rate cut plans

Final figures from Eurostat on Wednesday indicate that eurozone inflation decreased across the board last month, supporting projections for a June interest rate cut by the European Central Bank despite rising energy prices and a weaker euro clouding the outlook.

The euro area’s inflation rate fell from 2.6% to 2.4% in March, indicating a fourmonth low and validating preliminary figures. The euro area includes countries that use the euro as their national currency within the European Union.

Similarly, core inflation, which excludes prices of food and energy, declined to 2.9% in March from 3.1% in February. The overall and core inflation rates both came in line with estimates released on April 3. According to Eurostat, cost of food, alcohol and tobacco increased at a slower pace of 2.6% after climbing 3.9%. Simultaneously, the decline in energy prices slowed to 1.8% from 3.7%.

Meanwhile, the US economy finds steady growth. According to a Federal Reserve poll, the US economy grew slightly faster in the early spring and firms hired more people but there was little progress in bringing down inflation.

The most recent findings in the socalled Beige Book are consistent with the assessment of senior Fed officials, who, in recent weeks, stated the US should not lower interest rates too fast due to a robust economy and still-elevated inflation. The report stated that 10 of the Fed’s 12 regional districts “experienced either slight or modest economic growth”, which is two more than the previous Beige Book’s findings.

Finally, UK inflation eased less than expected, sparking concerns of US-style stickiness. According to official numbers released on Wednesday, inflation rate slowed by less than anticipated in March, which adds to indications that a first interest rate cut by the Bank of England may be farther off than previously expected.

According to the Office for National Statistics, the annual growth in British consumer prices was 3.2%, down from the 3.4% increase in February and its lowest in two and a half years.

Concurrently, core inflation declined to 4.2% from 4.5% in February. The rate was expected at 4.1%. Food costs contributed to the largest downward contribution to overall inflation, whereas motor fuel prices exerted the largest upward contribution.

Economists had been keeping an eye on services inflation as a measure of domestic price pressures. It decreased only slightly to six per cent in March, in contrast with goods price growth, which fell to only 0.8% in March from 1.1% in February.

This article does not constitute legal and/or financial advice and is being issued for information purposes only by Bank of Valletta plc, 58, Zachary Street, Valletta. Bank of Valletta is a public limited company regulated by the MFSA and is licensed to carry out the business of banking and investment services in terms of the Banking Act (Cap. 371 of the Laws of Malta) and the Investment Services Act (Cap. 370 of the Laws of Malta).