Inflation in the Eurozone falls to 2.4%, raising hopes for interest rate cuts

Inflation in the eurozone slowed to 2.4% last month, increasing expectations that the European Central Bank (ECB) will cut interest rates in June.

According to Eurostat, the statistical office of the European Union, inflation in the 20 countries fell by 0.2 percent from 2.6 percent in February, according to a preliminary estimate published earlier this month. This is a four-month low.

Underlying price growth, which filters out volatile food and energy prices, fell to 2.9 percent from 3.1 percent, although services inflation remained stable at 4 percent.

In March, services recorded the highest annual increase of 4% compared to February, followed by food, alcohol and tobacco with a rate of 2.7%, compared to 3.9% in the previous month.

At the same time, non-energy industrial goods prices rose by 1.1%, down from February (1.6%). Energy prices also fell by 1.8%, which was less than the decline in February (3.7%).

Inflation has fallen rapidly from its peak of 11.5 percent in October 2022 to nearly 2 percent, raising hopes of interest rate cuts as early as June.

Money markets are already factoring in interest rate cuts of 75 basis points for this year. Two months ago, economists predicted that the central bank would make at least four or five interest rate cuts of at least 0.25 percent each in 2024.

Last week, ECB President Christine Lagarde said: “If our updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission further strengthen our confidence that inflation is moving towards our aim in a sustained manner, then it would be appropriate to reduce the current level of monetary policy restrictions.”

It also maintained its neutral stance on interest rate cuts and postponed any decisions until June, when “much more information” would be available. This despite the fact that “some members” were prepared for a rate cut in April.

Read more: UK inflation falls to 3.2% in March as Bank of England hints at rate cuts

The latest data on Wednesday also showed that the lowest annual rates were recorded in Lithuania (0.4%), Finland (0.6%) and Denmark (0.8%).

The story continues

The highest annual rates were recorded in Romania with 6.7%, Croatia with 4.9%, and Estonia and Austria with 4.1% each.

In the other four major EU countries, inflation rates were above the EU average in Spain (3.5%) and France (3.4%), while Germany (3.1%) reported the same rate as the EU. In the UK, inflation was 4.2%.

Compared with December, annual inflation fell in 15 EU countries, remained unchanged in one and rose in eleven others.

Watch: How does inflation affect interest rates?

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