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Eurozone inflation fell to 2.4% in March, lower than forecast, reinforcing expectations that the European Central Bank will cut interest rates by the summer.
According to data released on Wednesday by the European statistics office Eurostat, the slowdown in annual growth in consumer prices compared to 2.6% in the previous month reflects smaller increases in the prices of food and goods, which offset the stability in prices of services . Economists surveyed by Bloomberg had forecast a March value of 2.5%.
The easing of the region’s worst cost-of-living crisis in a generation will be welcomed by the ECB, which meets next week to discuss how soon to ease monetary policy. Most analysts expect policymakers to wait until June to start cutting rates.
Many rate makers worry that rapid wage growth is still pushing up costs in the labor-intensive services sector, where prices have risen at a steady 4% annual pace for the fifth straight month.
Diego Iscaro, an economist at S&P Global Market Intelligence, said March’s decline in headline inflation “could raise expectations for a rate cut later this month.” But he predicted that “the rigidity of services prices will lead the ECB to wait for further evidence of easing of wage growth before starting the easing cycle” in June.
Some economists had predicted that services inflation in the Eurozone would rise in March due to the earlier Easter, which was expected to push up the prices of package holidays and flights.
Core inflation, which excludes energy and food prices to provide a better picture of underlying price pressures, fell slightly more than economists expected to 2.9% in March, from 3.1% of February.
Eurozone inflation has fallen rapidly from its peak of 10.6% in October 2022, after the coronavirus pandemic and Russia’s invasion of Ukraine triggered the biggest price rise in decades , leaving it surprisingly close to the ECB’s 2% target.
Senior ECB policymakers, however, have signaled they will likely wait until June before deciding on potential rate cuts to give them more time to assess whether wage pressures are moderating enough to keep inflation falling to target.
Separate data released by Eurostat on Wednesday showed the eurozone labor market remained resilient. The unemployment rate of 6.5% in February remained unchanged from January’s slightly upwardly revised figure.
A worrying sign for rate makers was that, on a monthly basis, consumer prices in the single currency bloc rose 0.8% in March, accelerating from 0.6% the previous month. The underlying inflation rate on a monthly basis rose to 1.1%.
On a yearly basis, fresh food prices in the Eurozone fell for the first time in almost three years, falling 0.4% in March. Energy prices fell 1.8%, a slower decline than February’s 3.7% decline. Goods prices rose 1.1%, the slowest pace since 2021.