FRANKFURT, Germany — The price increases that had been burdening European consumers decreased in March, as overall price increases in the two largest economies, Germany and France, began to decline and cost spikes in the grocery aisle subsided.
The 20 nations that use the euro saw an annual inflation rate that was lower than the 2.5% projected by financial markets, which moves the European Central Bank closer to its target of 2%.
Although encouraging, analysts think that the drop from 2.6% in February would probably not be sufficient to accelerate the ECB’s first interest rate cut.
The bank’s rate-setting council convenes next week, but despite the slowing economy, no initial cut in borrowing costs is anticipated until June, according to a number of analysts.
The European Union’s statistics department, Eurostat, released data on Wednesday that showed a 1.8% decrease in energy prices and a 2.7% decrease in food inflation. Core inflation, which does not include volatile prices for food and energy, decreased to 2.9% in February from 3.1%.
In Germany, annual inflation dropped from 2.7% to 2.3% in the previous month, and from 3.2% to 2.4% in France. Europe’s largest economy, Germany, provided data that “brings some relief for the ECB,” according to Carsten Brzeski, global head of macro at ING bank.
Analysts note that although costs for services, which range from movie tickets to medical treatment, are still high, ECB officials will want to examine the most recent data on wage rises.
According to Oxford Economics senior economist Rory Fennessy, “We think the ECB will start with rate cuts in June.” “An April rate cut is unlikely despite the fact that core inflation eased, services inflation is stubborn, and the ECB wants more wage data.”
Rate cuts from the US Federal Reserve are also anticipated later this year. Three rate decreases have been scheduled by Fed officials, notwithstanding a slowdown in inflation.
October 2022 saw a record high of 10.6% inflation in Europe as a result of Russia cutting off the majority of its natural gas supply due to the conflict in Ukraine. This caused energy costs to soar and created a crisis in the cost of living.
The pandemic’s aftermath stretched supply chains in addition to taking away the reasonably priced supply of gas required to power companies, heat houses, and produce electricity. This contributed to an increase in prices.
Although the pressure on prices has subsided, employees are again demanding more money to compensate for their diminished purchasing power. Because of this, the inflation rate fall has slowed, and the ECB is now hesitant to lower interest rates too quickly.
From July 2022 to September 2023, the ECB quickly increased its key rate from minus 0.5% to a record-high 4%. By increasing the cost of lending, decreasing consumption, and reducing price pressure, higher interest rates combat inflation.
The focus now is on when the European Central Bank (ECB) will proclaim victory over inflation and begin reducing rates to boost the faltering economy, as rate hikes can also impede economic growth. The downturn occurred when rate increases took effect and inflation robbed consumers’ wallets of purchasing power.
The economy of the eurozone shrank in the final three months of 2023. Data for the first three months of this year are expected on April 30.