Europe’s Inflation Rate has Fallen Again. Rates Will Rise Up Because

(CTN News) – Despite price spikes in the grocery aisle, inflation in Germany and France fell less than anticipated in March to 2.4%.

Financial markets had predicted a 2.5% inflation rate for the 20 euro-using countries, but the actual figure came in under that and brings the European Central Bank closer to its 2% target.

In spite of the decline from February’s 2.6%, analysts say it will not be enough to move up the ECB’s first rate cut.

Despite a slowing economy, several analysts expect the bank’s rate-setting council to cut borrowing costs for the first time in June.

The European Union’s statistics agency Eurostat reported Wednesday that food fell from 3.9% to 2.7%, and energy prices decreased from 1.8% to 1.8%. Moreover, core fell from 3.1% to 2.9% in February.

Germany’s annual inflation fell to 2.3% from 2.7% the month before, while France’s fell to 2.4% from 3.2%. German inflation data – Europe’s largest economy – “brings some relief to the ECB,” said ING bank’s global macro head, Carsten Brzeski.

The ECB will want to see the latest wage numbers, analysts say, because prices for services, ranging from movie tickets to medical care, are still high.

According to Oxford Economics’ Rory Fennessy, senior economist, the ECB is likely to begin cutting rates in June. “While core inflation eased, stubborn services inflation and the ECB’s desire for more wage data make an April rate cut unlikely.”

This year, the Federal Reserve is also expected to cut rates. Despite a slowdown, Fed officials are planning three rate reductions.

In Europe, inflation spiked to a record high of 10.6% in October 2022 after Russia cut most of its natural gas supply to the continent over the Ukraine conflict, sending energy prices skyrocketing. As well as losing access to affordable gas for heating homes, generating electricity and powering factories,

The rebound from the pandemic also strained supply chains, pushing up inflation.

Prices have eased, but workers are now demanding higher wages to compensate for their reduced purchasing power.

This has slowed the decline in inflation and made the ECB hesitant to cut interest rates too soon.

A record-high 4% key rate was set by the ECB between July 2022 and September 2023. Inflation can be reduced by raising interest rates by making loans more expensive, which reduces spending and eases pressure on prices.

However, rate hikes can also stall economic growth, and all eyes are now on the ECB’s decision to declare victory over inflation and begin cutting rates. With draining consumers’ pocketbooks and rate hikes kicking in, the economy slowed.

As of April 30, eurozone economic data for the first three months of this year are due.

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