The rate of inflation within France has dropped more swiftly than anticipated, reaching its lowest point since July 2021, according to the national statistics office. This contrasts sharply with the initial estimates by Reuters economists, who expected inflation to register at 2.8 per cent for March. Instead, it was reported at 2.3 per cent, a marked drop from February’s 3.2 per cent.
The decrease in inflation rate includes a reduction in all areas, with decreases noted in service inflation to 3 per cent, energy inflation to 3.4 per cent and a significant decrease in food inflation to 1.7 per cent. Prices of fresh food fell considerably, recording a 3.9 per cent drop year-on-year to March.
Interestingly, inflation on a monthly basis in the second-largest economy of the eurozone also decelerated, from 0.9 per cent to 0.3 per cent. Pending economic data, due next week, may reveal a small reduction in euro zone inflation to 2.5 per cent, further solidifying investor optimism that the European Central Bank (ECB) will begin to lower interest rates by June at the very latest.
The head of the French central bank, François Villeroy de Galhau, hinted in a recent address that if falling inflation continues to outpace projections and economic activity stays stagnant, the ECB could consider a rate cut as early as its meeting on 11th April. He underlined the importance of not overstating the effects of sustained monetary deceleration, while confirming that rate reductions could commence this spring.
Meanwhile, Italy has also reported lower-than-expected price growth, bolstering hopes of an interest rate cut. The Italian Statistical Office revealed a year-on-year consumer price increase of 1.3 per cent up to March, a smaller increase than the forecasted 1.5 per cent. Sales of seasonal clothing ending, alongside higher transport service prices and a slower fall in energy costs, were cited as main contributors to this rise.
Data from Spain, the fourth largest economy in the Eurozone, revealed on Wednesday that inflation rose marginally less than projected, going up from 2.9% in February to 3.2% in March. When energy and fresh food prices, which could distort the picture, are excluded from the equation, the basic inflation in Spain eased off slightly from 3.5% in February to 3.3% in March.
Consumer price growth in the 20 nations within the euro shared region decelerated to 2.6 percent in February, pulling it much closer to the Euro Central Bank’s (ECB) target of 2 percent. Following this week’s trifecta of lower-than-expected inflation figures for the Eurozone, Claus Vistesen of Pantheon Macroeconomics pondered, “Is a rate cut possible in April? It’s uncertain, but it’s a close call.” He also noted that the recent stats give the ECB some food for thought over the extended holiday period.
However, rate decision-makers are concerned that quick wage growth is still fuelling price increases in the service sector, where workforce intensity is high. In this sector, inflation only eased a touch to a yearly pace of 3.9% in February. Europe’s price growth has seen a fast decline from its October 2022 peak of 10.6%, following the disruptions resulting from the pandemic and Russia’s full-blown invasion of Ukraine which led to the highest price jump in a generation. This decline is fuelling optimism that the ECB could soon begin to reduce borrowing costs, after last year’s hike of the key rate to an all-time high of 4%.
High-ranking ECB policymakers have suggested they may hold off until June to ensure wage pressures are subsiding sufficiently to allow inflation to hit their target. – Copyright The Financial Times.