Germany's sliding headline inflation boosts bets ECB will cut interest rates in June
Is Weakening, June Ecb Costs Prepare Investors That Still In The Picture: A Of First For Ap/michael Broad Reduction A Probst To Borrowing Allowing Overall In The Picture
German inflation eased for a third month in March, supporting expectations that the European Central Bank (ECB) will start lowering interest rates in June.
Consumer prices rose an annual 2.3% last month, according to the statistics office — down from 2.7% in February and less than the 2.4% median estimate in a Bloomberg poll of economists. Food costs were a key driver of the slowdown.
The data come after France also reported a slowdown on Friday. At the same time, price gains accelerated in Italy and Spain — in line with warnings from policymakers that the path down to the 2% target won’t be smooth.
As governments across the region withdraw aid measures introduced when energy costs soared, inflation is being jolted by one-off effects. That’s also the case in Germany, where tax changes and a cheap transport ticket introduced in 2023 will exert upward pressure, according to Deutsche Bank economist Sebastian Becker.
But the overall picture is still that of a broad weakening, allowing the ECB to prepare investors for a first reduction in borrowing costs in June.
Eurozone data, due Wednesday, are expected to show a dip to 2.5%. A Bloomberg Economics nowcast updated after the German figures suggests a slightly lower reading of 2.4%.
ECB executive board member Piero Cipollone warned last week against putting too much emphasis on salaries, saying the eurozone’s fragile economy needs workers’ pay to catch up with prices in order to sustain the kind of recovery that’s hoped will gradually take hold.
What happens after monetary easing begins is unclear. Several officials have stressed the need to remain data-dependent and judge developments on a meeting-by-meeting basis, even as others appear to back more rapid loosening.
Meanwhile in Ireland, prices increased slightly last month by 0.3%, driven by stubborn food and transport costs, but overall annual price inflation continues to slow as interest rates take their toll, figures from the Central Statistics Office (CSO) suggested.
Price inflation dropped to 1.7% in the 12 months to March, falling below 2% for the first time since June 2021. Price inflation was 2.3% in the 12 months to the end of February and 2.6% in the eurozone during the same period.
Tumbling energy prices compared to surging levels recorded after Russia invaded Ukraine have driven falling annual price inflation. The latest flash estimate of the harmonised index of consumer prices (HICP) showed energy prices have fallen by around 3.1% last month and decreased by 8.4% in the year.
However, food prices are estimated to have decreased marginally by 0.1% in March but increased by 2.6% annually. Transport costs rose by 3.1% in the month and increased by 3.8% in annual terms.
The ECB will meet next week to discuss its plan to cut interest rates. At its last meeting, the regulator said that “domestic price pressures remain high, in part owing to strong growth in wages”.