Inflation eases on lower EU energy prices

FRANKFURT - Inflation slowed in Germany and Spain in March as energy prices fell, official data showed yesterday, adding to hopes that the eurozone was past the worst of the price increases.

In Germany, Europe’s biggest economy, price growth eased to 7.4% year-on-year in March, according to preliminary data from federal statistics agency Destatis.

In January and February, Germany’s inflation rate had held steady at 8.7%.

While food prices continued to show “above-average growth” this month, the increase in energy prices had “slowed considerably” compared with March 2022, when Russia’s invasion of Ukraine sent energy costs surging, Destatis said.

Analysts surveyed by financial data firm FactSet had expected a bigger drop in inflation, at 7.3%.

Falling gas and electricity prices had an even stronger impact on Spanish inflation in March.

Headline inflation in the country slowed sharply to 3.3% year-on-year, from 6% in February, according to preliminary data from national statistics office INE.

The latest figures showed that “the passthrough of higher energy prices into higher consumer prices is starting to lose strength,” said ING economist Wouter Thierie.

“Moreover, pressures on global supply chains have further eased in recent months to pre-pandemic levels, which is also dampening inflation.”

With inflation across the eurozone still well above the European Central Bank’s 2% target, the bank is expected to keep raising interest rates.

The size of the ECB’s next rate hike remains unclear, however, especially after recent turmoil in the banking sector highlighted the pain of higher borrowing costs on the economy.

Following this month’s hike by half a percentage point, many observers see the ECB downshifting and opting for a smaller rate rise at the next meeting in May. -