ECB set for interest rate cuts from June as inflation eases but prices still rising for consumers

Experts say it will take two years for pre-2022 buying power to return

Mortgage borrowers are in line for relief as the European Central Bank (ECB) is on course to start cutting interest rates in June.

There could be four cuts by the end of the year and the inflation rate in this country cooled again last month.

But although the rate of increase in inflation has slowed down, prices are still rising.

In other words, prices are still going up but just not rising as fast as previously.

Experts said it would take at least two years before people get back the purchasing power and standard of living they had before inflation took off after the Russian invasion of Ukraine in 2022.

Food prices have jumped by up to 25pc cumulatively over the last two to three years. The rate of inflation was 2.9pc for last month when compared with the same month last year, according to the latest figures from the Central Statistics Office (CSO).

The annual cost of motor insurance rose for the seventh consecutive month in a row.

March’s inflation figure was down from a rate of 3.4pc in the year to February.

This is the fifth time since September 2021 that the annual growth in the consumer price inflation has been below 5pc. It is also the fifth consecutive month where the inflation rate was lower than 5pc.

Prices rose by 0.5pc in March when compared with the previous month, the CSO said.

Last month transport costs rose mainly due to higher prices for airfares, petrol and diesel, the CSO said. Transport insurance was up by 5.1pc in the month.

This was the seventh month in a row of rises in the cost of transport insurance.

Interest rates could be reduced by the ECB four times before the end of the year, as some commentators expect the so-called refinancing rate to come down from 4.5pc at present to 3pc by the end of the year.

Rate reductions will provide a huge boost to the 180,000 homeowners on trackers, those on variable rates, people trapped with vulture funds that will not let them fix their mortgage rate and 70,000 borrowers who are coming off fixed rates this year.

It is expected that the ECB will cut rates by 0.25 percentage points in June. Every cut of that size will knock €15 off the monthly repayments on a typical tracker.

Most of those on trackers still owe around €100,000 and have around 15 years left to pay.

Inflation in the eurozone is coming close to the ECB’s target of 2pc, allowing it reduce some of the 10 interest rate hikes it has imposed over the last year and a half.

The ECB said that incoming information has broadly confirmed its previous inflation assessment while wage growth was moderating and firms were absorbing more of the labour cost increases via their profit margins.

The bank’s governing council, led by president Christine Lagarde, noted that inflation is continuing to ease, led by lower food and goods prices, even if service prices remain high.

It added that if confidence increased that inflation is converging on its 2pc target “in a sustained manner, it would be appropriate to reduce the current level of monetary policy restriction”.

This is the ECB’s clearest signal that cuts are on the way, as financial markets bet on a reduction in June.

Nevertheless, domestic price pressures are strong and are keeping services price inflation high, the ECB said.