Euro zone inflation lower than expected, with falling energy costs

The 20 countries that make up the Euro Zone recorded decelerated inflation rates, although food prices have risen with the official fall in energy prices, revealed this Friday the statistics agency of the European Union.

Euro zone consumer prices rose 6.9% in March, but that was down from 8.5% in February, the data showed.

However, food, alcohol and tobacco prices rose 15.4% faster than the 15% the previous month. This means that European consumers must still pay more for these essentials.

According to Bert Colijn ING, a senior eurozone economist, “this indicates that price pressures remain high at the moment, although this should improve in the coming months”.

However, energy prices fell 0.9%, an abrupt change of direction after rising to double-digit rates last year.

Russia’s invasion of Ukraine raised oil and gas prices last year, but they have become more stable in recent months, helped also by the mild winter.

According to data from the European Union statistics agency Eurostat, consumer prices fell from 8.5% recorded in February to 6.9% in March.

It is the lowest rate recorded in a year.

falling inflation

On both sides of the Atlantic, investors are focusing on inflation to gauge the next steps central banks will take.

Bloomberg and financial data firm FactSet predicted the inflation rate would reach 7.1% in the euro zone in March.

Despite having fallen from a peak of 10.6% in October, the rate remains high, above the 2% target set by the European Central Bank (ECB).

Central banks must be careful to balance controlling inflation with raising interest rates. Higher rises risk hurting the banking sector.

The ECB has repeatedly raised interest rates to tame rising inflation, but the size of the next rate hike is unclear after the recent turmoil in the banking sector.

Euro zone core inflation, which excludes volatile food and energy prices, rose to 5.7% in March from 5.6% in February.

This created fears about rising prices.

“The potential for core inflation to remain stickier than expected will be the main reason for the ECB to keep rising in the near term. We expect another 25bp rise in May and another in June,” ING’s Colijn said. in note.

In Germany, annual price growth slowed to 7.4% in March from 8.7% in the first two months of 2023.

dmn/jcg (AP,AFP)